Tracking the sentiment is not that easy in the business of Indian real estate. There is no ideal predictive model that could assess the sentiments of both the developers as well as the buyers. The leading voices of the sector has never been very consistent with their budget wish list and the post budget customary note. The most important stakeholders, the home buyers, are more often than not completely ignored when it comes to sentiment assessment post the Union Budget. A Track2Realty analysis.
The Union Budget 2022-23 has not even touched upon the pressing issues and demands of the real estate developers and the home buyers. There, of course, are some silver linings with which the budget is being hailed as a prone to growth budget.
Issues & Concerns
Some of the real estate touch points have been the government’s focus on the creation of 80 lakh affordable housing units by 2023 and allocation of INR 48000 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 that could immediately help the real estate sector; a business that is touted to be an engine of economic growth, and help support 250 ancillary businesses and create jobs.
Let’s first look at the demands and concerns of the real estate with the budget:
Raising the Income Tax exemption limit from INR 2 lakh to 5 lakh
Income Tax relief on second homes
GST reforms to fuel under-construction houses
Loan deferment or restructuring in wake of job losses
Redefining the limit of affordable housing
Funding gap & project financing to be addressed
Tax benefits on REITs investment
Rental Housing policy
Tangible benefit to affordable housing developers
Addressing compliance issues
Sentiment Tracking
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.
Industry Voices
Amit Goyal, CEO, India Sotheby’s International Realty offers a guarded response when he says that the Union Budget has laid out a long term path of growth and investment with an enhanced total expenditure at INR 39.45 trillion and yet managed to curtail Fiscal deficit to 6.4% in FY 23 (from 6.9%). The budget has allocated INR 48,000 crore to housing projects under the PM housing scheme. However, no big reforms or incentives were announced for the real estate sector.
“It is a missed opportunity for the real estate sector as incentives in the form of higher deductions against home loans, changes in incongruities related to real estate transfer and others might have improved the market scenario and triggered the demand and sales process in the real estate sector. Real estate sector being a major contributor to India’s GDP needs more focus from the government,” says Goyal.
Ramani Sastri – Chairman & MD, Sterling Developers agrees that despite the fact that the real estate was expecting a number of immediate demand-side pushes for the sector, some significant opportunities were missed. However, the push to infrastructure spending and sops for affordable housing have kept the sector hopeful of positive changes. While affordable housing continued to remain a priority area for the government with few additional reforms, the government could have given further boost to overall real estate which fuels the Indian economy and supports over 250 allied industries.
“There is a huge opportunity in real estate that would enable faster economic recovery. However, it requires careful support from the government in order to sustain the recently-achieved growth momentum. There are currently several grey areas when it comes to schemes, taxation, funding and others where the government should provide a helping hand going forward. It is imperative for the government to pay special attention to the real estate sector and have provisions for its well-being in the near future,” says Sastri.
Vaibhav Jatia, Managing Director, Rhythm ResiTel, “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. Effective 12% GST payable by the end user buyer towards purchase of a new house dampens the sale velocity of projects. In no other country, whether developed or developing, is the level of taxation this high for property transactions.
“When we add to this 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%) with no investment/consideration. If we want to make homes affordable for the public at large (not just for lower income families), this is where the solution lies. Given that a real estate purchase is a high ticket item for any middle income family, we hope that GST levels are rationalised in future budgets,” says Jatia.
Rajan Bandelkar, President, NAREDCO points out that the sector was expecting more in terms of incentives to boost sales and to fulfil the dream of Housing for All by 2022. According to him, while the government’s focus remains on affordable housing, the industry was hopeful of incentives under sections 24(b) and 80IA 2 (a) and (b) and on bringing Capital Gain Tax at par with equities.
“Establishment of a logistics network in the country will provide an impetus to the development of infrastructure in the country. Easing land and construction-related approvals will help the development firms in meeting the delivery timelines. The establishment of a high-level committee on the urban sector to drive modernisation of building bye laws, TDR reforms, transit-oriented reforms and sustainable development, including single-window green clearances will help the sector in the longer run. Moreover, increment of tax deduction limit to 14% from 10% on employers contribution to NPS account of state govt employees will strengthen the hands of those aspiring to buy homes,” adds Bandelkar.
Conclusion
In a nutshell, disappointment apart the real estate stakeholders have taken the Union Budget 2022-23 as well within the tolerance zone. Is it equally within the tolerance zone of the home buyers? It is a question that could only be addressed in the medium to long term impact of the budget. While there are some long-term hopes with the budget announcements, the short-term pains of the sector and the home buyers is something that could not be addressed with this budget.
Ravi Sinha
ravisinha@track2media.com
#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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