Budget expectations: Real estate sector

13 Jan 2022 , 03:01 PM

“Residential real estate demand has shown resilience, particularly in the mid-to-high-income segments, despite the disruption caused by Covid-19 pandemic, on the back of all-time low rate of interest on home loans, pent-up demand, incentives by certain state Governments and hybrid working model. Increase in the deduction benefit available on interest and principal payments on housing loans availed by buyers can support this recovery trend. Enhanced tax concessions on income from renting of housing properties and removing taxation on notional rental income can further boost demand for new properties.

Schemes such as PMAY have played a pivotal role in improving home ownership. Continued focus on budgetary and extra budgetary allotment to such schemes can improve access to housing in the low-to-mid-income segments of the population. The pending expenditure on PMAY is over Rs. 1 lakh crore, while the allocation was Rs. 48,000 crore in FY2022 (budget estimate) and Rs. 41,000 crore in FY2021 (revised estimate). The same needs to be ramped up in the forthcoming budget to meet the target of 50 million dwelling units under PMAY.  

On the supply side, the small-to-medium-sized players faced challenges in terms of reduced cash flows and credit availability owing to the Covid-19 pandemic. Efficient models for targeted credit availability to highly impacted projects can be considered to tackle potential issues such as stalled projects. The SWAMIH fund, announced in November 2019, had a target to raise Rs. 25,000 crore, out of which it raised Rs. 10,000 crore from the Government and the remaining from large institutional investors, including LIC, HDFC and SBI. Further augmentation of the budgetary allocation for the SWAMIH fund will support completion of the large stalled real estate projects in the country.

Notwithstanding the various industry-specific amendments to the insolvency resolution laws, the implementation of the bankruptcy process for real estate companies remains challenging. Steps towards streamlining the insolvency process to achieve faster adoption and implementation of resolution plans will be beneficial to both lenders and homebuyers in such stuck projects.

On the commercial real estate segment, incremental measures taken over the past years resulted in successful track record of REIT issuances. Further initiatives towards improving the ease of access to debt capital and enhance retail participation can channel more investments into this segment.”

Source: ICRA

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