The Union Budget 2022-23 lacked any fresh ideas as far as the real estate in general and the housing market in particular is concerned. Most of the announcements are more or less the extension of the old schemes and roadmaps. The euphoria of the industry stakeholders ahead of the budget turned into a deafening silence in the next few hours of budget speech. A Track2Realty analysis.
The developers who are known to bombard with the press releases post every Union Budget later issued the customary congratulatory releases but the disappointment was all palpable. Privately many of the developers admit that this has been the most disappointing budget in recent times.
After all, the real estate developers had pinned high hopes with the budget this time, and all the feelers from the power corridors indicated that the budget would be a realty friendly budget. It was indicated to be a budget that could not only address many of the pressing issues of the sector but also incentivize the home buyers to take a plunge in the housing market.
In the end there was neither hike in Income Tax exemption limit nor affordable housing price capping was increased. There was also complete silence on the much-talked rental housing in the last budget. This budget was expected to roll out the roadmap for the same. GST reforms and other concerns of the home buyers were not at all touched upon. In a nutshell, the shortest budget speech in recent times only reflected under-prepared fiscal planning.
The only real estate touch point has been the government’s focus on the creation of 80 lakh affordable housing units by 2023 and allocation of INR 48,000 crores towards the PM Awas Yojana. Gati Shakti Cargo Terminals could similarly be seen as fuelling demand of logistics and warehousing. That said, there is nothing tangible that could help the real estate sector in this hour of existential crisis. The sector, as a lip service, has always been touted to be engine of economic growth that helps support 250 ancillary businesses and create jobs.
Sentiment tracking is not that easy in the business of Indian real estate where the leading voices change their tone & tune in pre and post budget analysis. There is no ideal predictive model that could assess the sentiments of both the developers as well as the buyers. However, some of the unanswered questions that could define the sentiment with this budget are:
How could this budget fuel housing demand?
Why was Income Tax exemption limit not raised?
Has the budget addressed the fiscal challenges of the developers?
Has the budget incentivized the home buyers?
Has the budget been conducive for the home buyers’ job insecurity issues?
Why was budget silent on rental housing policy?
Why didn’t budget define the proposed roadmap for SEZ legislation?
Why has there been no GST reforms to fuel under-construction houses
Wouldn’t redefining the limit of affordable housing led to more demand?
What is the tangible benefit to affordable housing developers?
These are the real issues that plague the real estate business in this part of the world. These pressing issues were not touched upon and hence all eyes were on the stock market to see whether the Realty Index outperforms or underperforms immediately after the budget. The Realty Index that opened on a positive note ahead of the budget speech later remained flat; the budget announcements could not cheer up the Realty Index on a day when the BSE Sensex added 848.40 (1.46%) points and Nifty 50 added 237.0 (1.37%) points.
In contrast, the Nifty Realty Index that opened at 486.15 closed the market at 488.65 points. Similarly, the BSE Realty Index that opened at 3853.19 points closed at 3877.85 points.
Of course, the leading stocks in the sector that are beneficiary of the K-shaped recovery in the sector gained marginally, with DLF being the biggest gainer with INR 16.60 (4.25%) and Prestige being the loser with INR 2.0 (0.41%). None of the realty stocks could drive the stock market, as expected.
A section of analysts even point out that while the government’s focus remained towards promoting affordable housing, mid and high income housing continues to be adversely impacted by high levels of taxation, both direct & indirect. There is absolutely no incentive to buy an under-construction project today, with capital appreciation been in negative for the last few years.
Effective 12% GST payable by the home buyers dampens the sale velocity of projects. The fact is that if the GST is added to the additional Stamp Duty of 5-6% payable to State Governments as well as other high premiums payable for development in cities such as Mumbai & NCR, the government in effect & indirectly ends up becoming a significant economic partner in the project (33% -40%) without any investment.
This was not just the shortest budget speech in recent times, it also reflected under-prepared fiscal planning. Focus on long-term projects and 25 years of pipeline is not going to address the short-term pains of the business that is weathering an existential crisis. The most important stakeholder, the home buyer, is confused in the corridors of economic uncertainty today.
It is one thing to talk about creating mega cities and developing Tier II and III cities, but that kind of long-term roadmap needs definite agenda to make these cities sustainable. There had been no clarity as to how the proposed cities would manage to cope up with the employment and affordability issues. How these cities will be magnet to investment, create jobs and lead to a sustainable development would only define their feasibility.
All in all, it is a disappointing budget for the real estate sector that preferred to overlook the short-term pains and existential crisis of the business to focus on long-term & larger-than-life future ahead.
Ravi Sinha
CEO, Track2Realty
#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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