Understanding the mindset of Indian real estate has never been easy. The built environment of the Indian real estate could argue and demolish the best of consumer-centric reforms. Remember the way industry body CREDAI had called RERA prior to its inception, and that too in front of the then Union Minister Kamal Nath, builder harassment and public amusement bill. But at the same time they celebrate the self-inflicted injury on many occasions. Track2Realty finds the overtones of the sector all the more contradictory with the Union Budget, before and after the budget.
As the real estate fraternity is euphoric with the Union Budget 2024-25, even when the cost & benefit analysis would not suggest it has been a real estate friendly budget. Worse even, they are even applauding the removal of indexation benefits with the LTCG (Long Term Capital Gains Tax).
It is time for a reality check. Let’s see what all they had wanted and what all have they got.
Demands of real estate before the budget:
Oft-repeated demands of real estate
Industry status
Single window clearance
Revision of affordable housing cap from 45 lakh level
GST rationalisation on under construction
Rationalising circle rate
New demands of real estate
Second phase of SWAMIH funds with a corpus of INR 50,000 for affordable housing: NAREDCO.
Immediate implementation of land pooling policy.
Incentivising green development.
Taxes on essential materials such as cement (28%) and steel (18%) to be lowered.
Under Section 80IBA, the government provided a 100% tax deduction of the profits and gains derived from the business of developing and building affordable housing projects. However, the tax holiday expired in 2022. So, the revival of the scheme that would benefit developers of affordable housing projects, as such projects typically operate on thin margins.
Government land like Port Trust land, Railways, Defence unused land parcels, etc. to be unlocked and government partnering with credible private developers to develop affordable housing on the land.
Faster adoption of Model Tenancy Act with incentives, including tax incentive on rental income.
The External Commercial Borrowing (ECB) framework, issued by the RBI under FED Master Direction No.5/2018-19, prohibits companies availing ECB from using the proceeds for construction or development of regular housing projects and there is ambiguity regarding their usage for acquisition of land for affordable housing projects. To enable growth in the real estate sector, it was requested that these relaxations be provided under the ECB framework.
Simplifying FDI processes and making them more attractive to foreign investors for bringing capital into the sector.
Policies that make it easier for NRIs to invest in Indian real estate.
Demand for buyers
Increasing home loan interest deduction limit form INR 2 lakh to 5 lakh.
Revitalising PMAY for EWS and LIG housing by reintroducing the Credit-Linked Subsidy Scheme (CLSS) under PMAY.
Reducing LTCG on property.
Holding period for STCG and LTCG to be rationalised.
The interest deduction limit on housing loans under Section 80C of the Income Tax Act (I-T Act) 1961 (under the old regime) that is INR 1.5 lakh per annum, to be increased to INR 4 lakh per annum.
The limit of interest deduction under Section 24B of the I-T Act on housing loans stands at INR 2.0 lakh per annum to incentivize homebuyers. As the proportion of the interest payment is higher in the initial years of the loan tenure, it should be raised to raise this limit to at least INR 5 lakh per annum.
Also, this tax deduction should be entirely moved out of Section 80C, since it gets clubbed with other critical instruments such as life insurance, PPF, etc.
Introduction of tax incentives under Section 80C for real estate investment trust (REITs) investors.
Under Section 180EEA, first-time homebuyers under the affordable housing category receive an additional I-T deduction of INR 1.5 lakh for interest paid on home loans started in FY19-20. This deduction was extended to March 31, 2022. Demand was to revive this deduction and its scope expanded to cover at least the mid-end segment.
The cap of INR 2 crore on capital gains for reinvesting in two properties to be be removed.
In Budget 2023, the government set a ceiling of INR 10 crore for the long-term capital gain tax deduction for reinvestment in residential properties under Sections 54 and 54F of the Income Tax Act. The demand was that this limit be removed as it can be a big deterrent for HNIs/big- ticket residential reinvestments.
Further, capital gains on listed shares are considered long term if the holding period is 12 months. For REITs and InvITs (infrastructure investment trusts), it is 36 months. Demand was that the latter two instruments be standardized to 12 months.
Currently, the criteria for affordable housing are based on the cost of the property (INR 45 lakh), carpet area (60 sq. m to 90 sq. m), and income of the homebuyer (EWS / LIG). Demand was to expand the cost, size, and income criteria to make the scheme more inclusive.
What real estate has got? None of these demands?
On the face of it, Urban Development was kept among the 9 priority areas of the government. But none of the industry-endorsed demands were entertained otherwise.
In terms of the tangible gains, most of the announcements are not in sync with the ground realities.
Proposal PMAY: 3 crore more houses with an investment of INR 2.2 lakh crore.
Reality Check: There appears to be a data discrepancy even with the government data about the actual sanctioning and completion of earlier PMAY beneficiaries. There has also been an issue of irregularities, even flagged by the CAG. Some of the beneficiaries didn’t started construction and there had been challenge of recovery.
Rental Housing: Dormitory type accommodation for urban migrant workers. PPP model has not been a success story in India more often than not, and FM has not rolled out incentive to the private partners.
Reality Check: No blue print available beyond the announcement. There has absolutely no mention of even earlier announced such schemes.
Stamp Duty: States would be encouraged to lower Stamp Duty and incentivise women buyers.
Reality Check: Stamp Duty is a State subject. There is no mention of how Center would compensate States to do the same.
Land related reforms by states: Center to incentivise the States.
Reality Check: There has been no blue print of the same in the public domain.
Land related actions: Urban land records to be digitised with GIS mapping. Rural land to be digitised with GIS mapping; Bhu-Aadhar for all lands.
Reality Check: No blue print announced for the same. Also, there is no time frame to implement this.
City as growth hubs: Creative redevelopment of cities to make these growth hubs.
Reality Check: No blue print for the same. Also, there has been no mention of development with already announced Smart City mission.
LTCG: Long Term Capital Gain Tax reduced from 20% to 12.5% without indexation benefit.
Reality Check: Biggest blow on the housing market and higher LTCG on selling houses unless the holding period is long enough and property appreciation is in the range of 11% and above, which is not an ideal scenario.
Industrial Parks: Plug & play industrial parks in 100 cities with States and private participation.
Reality Check: Too lofty a promise keeping in mind the ground realities of Center-State collaboration and there is no blue print to incentivise the private parties.
Track2Realty View
The Union Budget 2024-25 has not just ignored the real estate sector and its long list of demands, but rather hurt its cause. Despite some of the lofty promises, and over-ambitious targets without roadmap, this budget is going to hurt both the builders as well as the buyers. The mood of public could be gauged with bearish sentiments, but what is preposterous is the overtones of the stakeholders within the sector.
Ravi Sinha
Twitter: RaviTrack2Media
Ravi Sinha is a journalist with over two decades of cross-discipline media exposure. He is the CEO of real estate thinktank group Track2Realty. He has been writing extensively on the real estate sector for more than a decade now. Evaluation of real estate brand performance is his core domain expertise and he has immense insight into consumers’ psychograph. He has conceptualised Track2Realty BrandXReport as India’s 1st & only objective & non-paid brand rating journal that is industry-accepted benchmark of brand equity & ranking of the Indian real estate companies.
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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