What does the real estate sector expect from Union Budget 2021?

There are many expectations that the real estate developers and real estate buyers have laid out to the government for a long time now. But the pandemic has just made it a lot more urgent and pressing.

Jan 31, 2021 12:01 IST India Infoline News Service

The one sector that has borne the brunt of the COVID-19 pandemic is the real estate sector. Work-from-home or WFH has hit the demand for office space and income uncertainty has hit demand for homes. In addition, most builders are crunched for funds and the social distancing norms and tough labour conditions have only made things worse. Obviously, the one sector that is really expecting the Finance Minister to wield the magic wand is the Realty sector. Let us look at some key expectations of the realty sector.

Major expectations of the realty sector from Budget-21

There are many expectations that the real estate developers and real estate buyers have laid out to the government for a long time now. But the pandemic has just made it a lot more urgent and pressing. After all, realty contributes nearly 8% to the GDP of the Indian economy and has great multiplier effect on GDP, consumption and jobs.

• To begin with, there is a need to extend some benefits already offered. The realty sector has already been offered a 6-month moratorium on EMIs as well as restructuring of loans of real estate companies for a fixed period. Considering the current scenario, it is essential to extend this further by at least another one year till normalcy is restored.

• With investors getting wary, there could be an increase in demand for rental property. Currently, in the absence of HRA, the benefits of exemption on rent paid are restricted to Rs5,000 per month. Needless to say, this is grossly inadequate from a pragmatic perspective. There have been calls for hiking this limit from Rs60,000 per year to around Rs200,000 per year to make the exemption more meaningful. This can at least drive the demand for rental properties.

• Scores of projects were already lying incomplete and COVID has only made it worse. The supply side needs to get adequate funds to complete the projects. The SWAMIH initiative is appreciable for stalled projects but that is still too macro in nature and must be extended to last-mile funding also.

• Of course, tax incentives can also work and can work effectively. Currently, the limits on interest on home loans are limited to Rs2 lakhs per year under Section 24 of the Income Tax Act. To be meaningful, considering the current property prices, the ideal road ahead is to enhance this limit to at least Rs5 lakhs so that people can really benefit by going for an apartment on loan. Secondly, the idea of including principal on home loan under Section 80C, does not really make sense. Instead, the total exemption limit can be kept at Rs5 lakhs and principal amount can be included under Section 24 itself.

• Let us turn to the all important aspect of GST for properties under construction, which is a major bone of contention and a cost enhancer. Currently GST for properties under construction is charged at the rate of (a) 5% minus ITC benefit for premium homes valued at more than Rs45 lakhs and (b) 1% for affordable homes of value less than Rs45 lakhs. GST cut is likely to be a big boost for housing demand. This will also address the problem of inadequate buyers to a large extent. In addition, the real estate sector also wants that the input tax credit or ITC for purchase of goods and services for commercial leasing or rental activities.

• Real estate is the second largest job creating sector in the country after the retail sector. That makes it critical to any growth plans and real estate demand also has a strong multiplier impact on growth. Most developers are looking at a package of special incentives which may be temporary but can boost demand in the short to medium term.

• The real estate sector has also been suggesting that the definition of affordable housing is too narrow. Defining those properties above Rs45 lakhs as premium properties is inconsistent with home prices. This limit must be enhanced to Rs1cr. Additionally, the space limit for affordable housing of 60 SQM in metropolitan cities and 90 SQM in non-metropolitan areas can be done away with.

• The industry has also demanded that the deadline for the Pradhan Mantri Awas Yojana or the PMAY credit subsidy scheme for the medium income group category be extended beyond the expiry date of March 2021. In addition, at a more fundamental level, realty players also want that real estate be classified as infrastructure sector and be exempted from section 194N of the Income Tax Act, 1961 for at least 5 years to address the big cash flow challenge.

If there is one sector that is really looking at the budget for some big bang benefits it is the real estate sector. Considering its criticality in growth and jobs, it is hoped that the finance minister will not disappoint this segment.

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