On the eve of every Union Budget the real estate stakeholders get into a huddle to set the narrative that could influence the fiscal policy. They are conscious of the fact that the business of real estate gets more affected by the fiscal policy than the recurring monetary policy that shapes the outcome of floating interest rates every now and then. A Track2Realty analysis.
What’s in store ahead of the Union Budget 2022-23?
Have the leading voices learnt to live with the reality of gaps in wants and needs?
Have they become more realistic with their budget expectations?
Are they conscious of the fact that the business can’t see the northward curve if the concerns of the most critical stakeholder, the home buyers, are not addressed?
Prima facie, the industry narrative ahead of the Union Budget 2022-23 is more balanced to accommodate the concerns of all the stakeholders. As a result, demands like the industry status, single window clearance, ease of project finance etc are not as loud as the limit of tax deduction given to home loan borrowers to be increased to INR 5 lakh. The developers also want a review of the definition of ‘affordable housing, lower long-term capital gains tax to encourage more investment, and new provisioning for rental housing schemes.
Industry Voices
Lincoln Bennet Rodrigues, Chairman & Founder, The Bennet and Bernard Company admits that the expectations from the upcoming budget are high and the industry is awaiting big announcements and policy support that can not only revive the sector but also alter the future of the real estate sector. More tax sops and higher relief on the home loan rates will woo a broader segment of home buyers and investors to buy property. The existing tax exemption on housing loans should be raised to give impetus to a buyer sentiment. There is specific need for income tax relief on a second home which will benefit home buyers in a big way and also stimulate the real estate sector.
“The budget can also support the industry by ensuring reduction in compliance issues. It should also strengthen the existing financing systems to provide liquidity as developers need a rational capital flow to keep up the work process. We are also hoping for GST reforms as this will reduce overall property cost and push demand for homes, granting of industry status to the overall real estate sector and implementation of single window clearance amongst others. We also hope that there will be more announcements to enhance ease of doing business for the developers and are optimistic that the real estate sector is ready for explosive growth in the post pandemic era,” says Rodrigues.
Ajay Sharma, Managing Director, Valuation Services, Colliers India believes extending the tax concessionary benefits pertaining to affordable housing, increasing tax set-off for housing loan interest payment under sections 24, 80EE and specifically increasing the standard deduction could increase the cash available through savings for taxpayers. These combined with more specific curative measures like long-term capital gains period be reduced for REITs and increase the total deduction available under 80C where the home loan principal repayment deduction is allowed, will increase investment into real estate.
“The budget should focus on bringing all housing segments under one single GST slab while extending additional benefits to affordable housing to the buyers through tax concessions thereby sustaining the momentum for affordable housing and at the same time increasing growth of other housing segments through GST relief to developers,” says Sharma.
Dr. Nitesh Kumar MD & CEO Emami Realty points out that Section 80C of the Income Tax Act allows a deduction for home loan principal repayments. Along with home loans, Section 80C provides deductions for various other expenses and investments. Currently, these deductions are limited to INR 1.5 lakh. This limit has remained the same for a long time, so we are expecting it to rise. The government can introduce a separate section under 80C for the deduction of 1.5 lakhs from home loan principal repayments. Middle-class taxpayers generally exhaust their rebates on investments like PF, PPF and life insurance, limiting their eligibility to claim tax benefits on loan principal payments.
“Currently, the interest rate on home loans is around 6 to 7%. Nevertheless, if someone takes a loan of more than 30 lakhs, they will not be able to deduct the full interest paid in the first few years. The deduction of interest rates is limited to 2 lakhs per year under Section 24(b) of the Act of Income Tax. The industry demands a minimum tax rebate of 5 lakh in lieu of the current 2 lakh,” says Kumar.
Ramani Sastri, CMD, Sterling Developers agrees that this year the demands go beyond the usual expectations of single-window clearance and industry status. The appetite from end users’ needs to be rekindled though targeted demand side measures. Personal tax relief, either by tax rate reductions or amended tax slabs, is the need of the hour, which has been long overdue. To boost the consumption in this sector, the government should focus on providing more liquidity to the taxpayer by raising the ceiling of the rebate on the home loan interest.
“We also expect input tax GST credit for developers, reduction in stamp duty which has happened in several states and registration charges which make a sizeable difference to the cost of a project, thereby boosting home buyers’ sentiment and encouraging them to go in for property purchase. There is a need to redefine ‘affordable housing’ to INR 50 – 60 Lakhs as this would expand the benefits for homebuyers and therefore boost the end-user demand,” says Sastry.
Shraddha Kedia-Agarwal, Director, Transcon Developers points out that amid the pandemic, the government has recalibrated its approach towards remobilizing the economy and introduced various reforms to ensure adequate liquidity in the system such as keeping the interest rates low, additional liquidity support to NBFC and HFCs. RBI’s accommodative stance for such a long duration too helped mitigate the effects of Covid-19 on businesses and was a key to the recovery of real estate and the overall economy. These reforms have eventually proven to be positive for the economy in the long run.
“The outlook on India’s economic growth in the coming years looks very positive with the way the Government has tackled the Covid crisis. The upcoming budget needs to be more attractive to foreign investors as it will be an ultimate platform to announce further incentives which will attract more foreign investments into the sector. Considering the rupee’s recent muted performance, this budget is an ideal time for reforms targeted at foreign inflows into India. We expect the government to reduce the tax on interest income which will help accelerate capital inflows to India. Liberalizing foreign investment norms in real estate is another widely expected move,” says Shraddha.
Change in Budget rhetoric
Oft-repeated & unmet demand on the backburner
Demands in sync with the market realities & feasibility
Focus on demand side
Balancing industry needs with buyers’ concerns
What could transform housing market?
Faster economic recovery
Job growth
Income Tax relief on second homes
Funding gap to be addressed
Tax benefits on REITs investment
GST & Stamp Duty waiver
Increase in the limit of affordable housing
Liberalising foreign investment
Critical missing link
Road map for ease of project finance not defined
Ease of doing business
Tangible benefit to affordable housing developers
Addressing compliance issues
In a nutshell, the developers are more guarded and realistic with their Union Budget 2022-23 expectations. They may be missing the larger picture in the process but are conscious of the fact that the budget wish list is not meant for headline management. However, for the buyers the market is full of “What Ifs” and it is the job market trajectory that would define the future roadmap of real estate. In terms of the budget expectations that has been a critical missing link on part of the industry stakeholders.
Ravi Sinha
#RaviTrack2Media
Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.
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