The impact of the pandemic on the real estate sector had brought forth several worrying challenges - constricted sales, construction delays and deferment of deals being the major issues. While the government had introduced several fiscal and policy aids to alleviate the situation, these measures alone are not enough to bring the sector out of the woods. Presently, with a slight uptick in the economy and the vaccine for COVID-19 ready, there are many expectations from the Union Budget.
Some of the key issues on the budget wish list from the real estate sector perspective are:
Relaxation in income tax norms – The government currently permits an additional income tax deduction of up to ₹1.50 lakh on the interest payment on home loans for affordable housing units. The sector believes that an extension of tax benefits by another year would help buyers who have already taken home loans. Ideally, an extension of this benefit should also include first-time buyers of mid-segment housing.
Push towards affordable housing – The government had accorded a taxation holiday in the last budget to real estate developers, according to which 100% tax deduction under Section 80IBA of Income Tax Act, 1961, was authorised till March 2021 for affordable housing projects. It is expected that this budget would extend the taxation benefits by another year to catalyse real estate growth. Incentives for private sector investments in affordable housing should also be proposed as it is difficult for developers to source funding from major banks and NBFCs at reasonable cost.
GST reforms – Presently, the GST rate on under-construction housing properties is pegged at 5%, subtracted by the Input Tax Credit (ITC) advantage for premium homes (priced at over ₹45 lakh), and 1% for affordable homes (priced at less than ₹45 lakh). A limited period of GST waiver, if provided, can lead to reduced property costs, which in turn, would increase demand for under-construction housing units and unburden unsold inventory. Enhanced sale of homes would provide developers with sufficient capital for completion of projects while reducing their dependence on lending institutions. Alternatively, capping of GST rate at 1% for all under-construction projects can greatly aid in the sector’s revival. Restoring ITC and allowing developers to claim this benefit along with low GST rates of 1% and 5% till March 31 next year would also encourage construction activities.
Extension of CLSS subsidy – While the government has already extended the deadline for the PMAY’s subsidy scheme for the MIG category till March 2021, this can be further extended by another year till March 2022.
Boost investment in REITs by way of tax incentives – In times of liquidity crunch, REITs have emerged as a preferred investment option in real estate. An exemption provided by the budget under section 80C to investments in REITs, starting with ₹50,000, would boost investment in the sector significantly. It is also suggested that the period of holding REITs units to qualify as long-term capital asset, for lower tax rate, should be reduced from 36 months to 12 months (as applicable for listed shares).
Increased transparency in utilisation of last-mile funding – While the launch of the SWAMIH fund, created to complete pending projects based on last mile funding, was hailed as a welcome move, it has become imperative to depict transparency regarding the fund’s operation to homebuyers. A monthly comprehensive report with details on the status of projects funded, number of units completed, total loans disbursed, et al, would augment the confidence of buyers on the fund’s utility.
Thus, it is evident from the expectations harboured by the real estate sector that it is banking on the Union Budget to create an environment conducive to its growth, generate new business opportunities and lead the economy to new heights. It however, remains to be seen if these expectations are brought to fruition in the budget announcements.
(The author is CEO-APAC, Vestian Global Workplace Services)