What real estate expects

With residential real estate bouncing back last year amid unfavourable conditions, Union Budget 2023 to be presented on February 1 should be able to sustain the trend

Published - January 13, 2023 05:59 pm IST

The real estate sector is among the large contributors to India’s GDP and the second largest employer in the country. The sector drives over 200 industries right from manufacturing to services, and any incentive extended to real estate can also stimulate all the ancillary industries. Here are five recommendations to consider regarding five major issues in the sector.

1. Tax deduction on principal repayment of housing loans (Section 80C)

At present, Section 80C of the Income Tax Act does not provide for a focussed benefit on housing, which is the largest and most important expenditure for most taxpayers during their lifetime. Even investors have numerous alternatives to choose from and the lack of exclusive tax benefit on the principal amount of home loans make them indifferent towards a house purchase. A separate annual deduction of ₹1,50,000 for principal repayment will improve housing affordability and provide the much-needed fillip to opt for home loans.

2. Hike home loan deduction limit under Section 24

Section 24 currently allows for a deduction of ₹2 lakhs on housing loan interest. This needs to be extended to ₹5 lakhs to boost affordability and housing sales.

“The Union Budget 2023 should offer a degree of personal tax relief, either by way of lower tax rates or by readjusting tax slabs. Doing so would also help boost housing absorption. As the real estate sector gears up to receive support from the Budget, an increase in tax exemption on interest paid on home loans, exemption on rental incomes, uniformity and expansion in the definition of affordable housing would be welcome. Existing financing systems must be strengthened so it can provide liquidity to stuck real estate projects in India. The current system relies on commercial banks, which have a limited appetite for risk-taking. The government should make it easier for developers to access non-bank financing such as bonds and equity from institutional investors. The government also needs to ensure that the prices of housing are affordable for all segments of society. It must also make sure that there is a balance between supply and demand, so that prices don’t go out of control and lead to a crash. We also expect that the government in its forthcoming budget should also look into the availability of land, as well as its cost, before setting prices for houses in India.”Avneesh SoodDirector, Eros Group

3. Relax capital gains criteria to support homebuyers

Under Section 54 of the Income Tax Act, long-term capital gains from sales of existing houses can be utilised in buying or constructing a new property. If the investment for exemption is done through an under-construction property, it can be claimed only if the construction of the property is completed within three years of sale of the earlier house.

Residential projects are continuously increasing in scale in terms of number of units, height and amenities which cause them to have completion timelines in excess of three years. Also, while the implementation of RERA has caused an improvement, the completion timelines of under-construction projects frequently exceed deadlines. This causes significant hindrances to homebuyers in setting-off capital gains in under-construction properties. To mitigate this, we recommend that the completion timeline of under-construction properties be extended to five years instead of the existing three.

4. Improve financial viability of affordable housing projects

Affordable housing project registration deadline to avail tax holiday under Section 80IBA has lapsed. Reintroduction of the Section is important.

The 100% tax holiday for affordable housing projects under Section 80IBA was available for projects which are approved till March 31, 2022. This section allowed developers to claim 100% tax exemption on profits subject to several qualification criteria including the approval deadline. Since this is arguably the most materially meaningful measure to boost the viability of affordable housing projects, it is important to revive this measure once again.

5. Boost rental housing in the affordable segment

100% exemption for rental income up to ₹3 lakhs for houses costing up to ₹50 lakhs. This will encourage individuals to invest in the affordable housing segment, which suffers a massive housing shortage. Given the low rent yields, owners of such houses avoid letting it out. This measure will directly incentivise such owners to rent out their houses to the targeted segment, augmenting the efforts to increase housing stock in this segment.

Expectations of Budget 2023
The central government has done a lot of work for the real estate sector with landmark initiatives in the years 2021-2022, one of which was affordable housing, also known as Pradhan Mantri Awas Yojana (PMAY). The sector has pinned its hopes on the upcoming Union Budget, expecting continued support through provisions that will benefit not only the real estate sector but the entire country’s economy. The five expectations of Union Budget 2023 are:
1. The industry requires a single window clearance to streamline and expedite the process as the average number of permissions required by developers exceeds 50, and the process typically takes good time.
2. To attract homebuyers from across the country, particularly first-time buyers, the government should raise the tax deduction limit for home loans from ₹2 lakhs to ₹5 lakhs per year, thereby providing tax relief to homebuyers.
3. The real estate industry will be able to draw equity investment, restructure its debt, and get loans at cheaper interest rates with the support of a long-pending request for ‘Industry’ status.
4. Prices have risen due to ongoing crises, so we expect announcements on specific schemes such as a reduction in GST on under-construction properties and pricing of key raw materials.
5. The emphasis should be on increasing investments in green infrastructures such as renewables as well as traditional infrastructures such as roads, railways, and ports.
Kaushal Agarwal, Chairman, The Guardians Real Estate Advisory

The writer is Chairman & Managing Director, Knight Frank India.

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