What does the real estate sector expect from Union Budget?

By Shrinivas Rao,

Limited sales, construction deferrals, and rescheduling of deals were just few of the many challenges that the real estate industry faced due to the pandemic. As far as government support was concerned, the fiscal and policy aids proved less than ideal in assisting the industry. Now, with the availability of COVID-19 vaccine and its phased rollout, the industry is looking to the Union Budget with quite a few expectations.

Some of the key issues on the budget wishlist from the real estate sector perspective are:

Relaxation in income tax norms - The government currently permits an additional income tax deduction of up to INR 1.50 lakh on the interest payment on home loans for affordable housing units. The industry believes that an extension of tax benefits by another year would help homebuyers who have already availed 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 INR 45 lakh), and 1% for affordable homes (priced at less than INR 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 the 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 INR 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 assets, 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 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 homebuyers on the fund’s utility.

All in all, the real estate industry has its eyes set on having a conducive environment that propels growth and helps generate new business opportunities. Whether or not the Union Budget fulfils these expectations is something only time can tell.

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(The author is the CEO-APAC of Vestian Global Workplace Services)