Budget expectations of the real estate sector

The real estate sector contributing nearly 9.8% to the overall GDP has fared poorly for the last 5 years and the impact of the Covid-19 pandemic has only aggravated the situation.

Most of the critical constituents of this sector (retail, builders, commercial, hospitality) which supports 224 ancillary units, is high in employment generation having multiplier effect have taken a serious beating.

PMAY: The performance under the PM’s pet policy of “Housing for All by 2022” has been dismal. The progress and the ‘houses completed’ status under the ambitious Prime Minister Awaaz Yojana (PMAY) both under urban and rural have been tardy.

For 2020-21, the houses sanctioned under PMAY (U) were 109.73 lakh, houses grounded 70.44 lakh and shockingly the houses completed are only 41.27 lakh (as on 20th January 2021 - provisional). Out of 109.73 lakh, hardly 13.40 lakh were the beneficiaries under the Cash Linked Subsidy Scheme (CLSS) with an outgo of Rs 30,868 crore.

Even under the PMAY (G), the completed houses are a meagre 1.10 lakh houses as against a target of 2.95 crore by March 2022.

Distressing is even the exclusive funds allocated for SC/ST under both PMAY(U) and PMAY (G) to the tune of Rs 443.91 crore and Rs 253.50 crore respectively, have been unspent.

In the backdrop of Covid devastation on the real estate / infra sector and affordable housing , the FM will have to focus on rollover of certain programmes, reset of deadlines of few policies to 31/3/2022 and implement sectoral / entity approach in resolving the woes of the sector and to ensure quality of the spend / end use instead of diarrhoea of new programmes and funds allocation with very little elbow space for fiscal extravaganza.

Policies directed towards demand pull should be the kernel of the budget rather than dealing with the supply side. Last year has been a lost year.Home loan borrowers / prospective buyers of apartments are in a state of confusion and anomalies with respect to PMAY/CLSS schemes, GST & RERA issues.

There is no uniform definition of ‘affordable housing’. PMAY (CLSS), MIG1 and MIG2 consider a maximum 90 sqm and 110 sqm carpet area as eligibility benchmark. Shockingly, the GST council stipulates carpet area upto 90 sqm in non-metros and 60 sqm in 6 metros and makes the candle burn at both ends, by capping the value of the apartment at Rs 45 lakh to avail the 1% GST benefit without input credit. The cap of Rs 45 lakh has to be removed to push both the demand and the supply.

GST for cement at 28% (sin tax!) and steel at 18%, which are major components in the construction activity defeats the objectives of promoting affordable housing. The rates have to be rationalised to at least 18% for cement and 12% for steel to boost construction activity.

Non applicability of RERA for completed housing projects / with occupation certificate has resulted in dip in sales of ‘under construction projects’ which attracts GST.

Prospective buyers are adopting a wait and watch approach for buying ready to occupy apartments. This has led to mounting of inventory, builders getting into the whirlpool of the liquidity crisis - leading to huge ‘stalled projects’ and rise in customer disputes/litigations.

To rollover the IT benefit of Rs 1.5 lakh interest rebate from housing loan EMIs paid, u/S 80EEA- value of apartments less than Rs 45 lakh- by one more year till March 2022. Appropriate move would be to remove the cap of Rs 45 lakhs and the condition of ‘first house’, to avail the benefits. Good programmes with socio-economic intent should not have impractical riders, which will only suffocate growth.

To compensate the builders who are in deep liquidity crisis coupled with lukewarm demand for purchase of apartments - before and after Covid - the tax holiday on profits earned from Affordable Housing Projects (AHPs) under 80IBA has to be extended by one more year at least, for projects approved till March 31, 2021.

Bankers reluctance to lend to real estate, housing and infrastructure sectors, humongous NPAs which can breach Rs 15 lakh crore by March 2021 has led to unsold inventory of 8 lakh units in the 7 metros, constituting 4-5% of GDP, 250 stalled projects, worth Rs 4 lakh crore.

Extraordinary situations warrant extraordinary actions. FM should take policy initiative to redefine NPA classification from the present 90 days to 180 days. This will save the entire banking industry, NBFCs and HFCs from the stress of huge provisioning required in the balance sheet for bad and doubtful debts especially in the backdrop of delinquencies - post moratorium, confusion in the debt restructuring programme offered till last December for Covid-hit accounts (hardly Rs 2 trillion), SC directions of freezing NPA status of certain type of accounts and RBI’s directions to ‘pause’ IBC actions for an year. The policy can be reversed after 2 years of stabilisation.

RBI tightening the regulatory framework for HFCs/NBFCs leveraging of funds, capital adequacy ratio and the move for stricter norms, ‘bank like’ regulations for big shadow banks will result in temporary crisis.

Though these tightening measures are welcome for ‘shadow banks’ and systemically important NBFCs, they should be facilitated with special ‘fund support’ at reduced interest rates, securitisation of their pooled assets with special purpose vehicles and to permit them to access long term ‘cheap funds’ from overseas pension funds, PF and insurance corpus - especially from the unclaimed funds and with special refinance facilities from NHB. This will promote a level playing field with the bankers, ALM mismatch and further penetration of NBFCs /HFCs to tier-2 and tier-3 rural areas.

Infrastructure status to be accorded to the entire real estate sector and not restricted to ‘affordable housing’. This is a long standing demand to facilitate all the stakeholders - infra, builders, PPP players to access long term funds at attractive rates.

To give effect to the ‘affordable rental housing’ scheme, which was mooted during the last budget with greater IT benefits to promote rental housing amongst the migrant workforce on account of the rising of the urban housing shortage by 54% to nearly 30 million.

Single window approvals with clear cut timelines for all construction related permissions and to make ‘bureaucracy’ and their actions of omissions and commissions to be made part of RERA.

●(The writer is a former banker)