Union Budget every year is the time when all the stakeholders of the Indian economy look up to the Finance Minister with optimism. Track2Realty noted that across the industries the wants & needs of the demand & supply side are not as juxtaposed as with the real estate. While the developers lobby hard to get the best deal out of the Union Budget, the buyers have their own set of choices and concerns. The Finance Minister is expected to walk a tightrope to balance the concerns of various stakeholders.
The Union Budget 2021-22 is a bit different, at least on the face value. The last quarter sales of Calendar Year 2020, borne out of a pent-up demand that was incentivized with lower interest rate and reduced taxes (in Maharashtra at least) has made the developers realize the importance of the end users coming out in the market. The wants & needs of the two sides are still not on the same page.
On the face of it, the justification is that the lower cost of doing business for developers will lead to lower property prices for the buyers.
Let’s first examine the budget concerns of the builders, buyers and some other larger concerns that the Finance Minister has to keep in the mind:
Developers’ Budget Concerns
Industry status
Infrastructure status to affordable housing
Investment subsidy for affordable housing
Single window clearances
Maharashtra Model of reduced levies
Availability of funds
Longer repayment cycles
Lower tax on raw materials
Exemption from notional rent, on unsold inventories, to be extended to 3-5 years from 2 after Occupation Certificate
Home Buyers’ Budget Concerns
Lower interest rate
Income Tax exemption limit to 5 lakh
Deduction of INR 1.50 lakh for repayment of principal on home loan beyond Section 80C
Section 24(b) & 80 EEA for homes worth INR 45 lakh to be extended up to 1 crore
GST Waiver on Under Construction
Lower Stamp Duty
Loan Moratorium in wake of job losses or salary cut
Removal of Capital Gain Tax
Enhanced threshold for Circle Rate variations
Larger Concerns to Revive Real Estate
Job creation
Attracting investment in real estate
Rental Housing policy
Bridging funding gap in the sector
Liquidity flow with housing finance companies
Infrastructure rollout
Industry Standpoint
Amit Modi, Director of ABA Corp does not agree that the concerns of builders and buyers are juxtaposed. According to him, all the stakeholders are co-related – whether builders, buyers or even the government bodies – and hence the sector has largely been conscious of the ground realities that affect the business. The realization is always there that the demands to reduce the project cost, including the tax burden, has a direct linkage with the end users’ benefits.
“In a competitive market, the builders are not in a position to walk away with the benefits borne out of lower taxation and the reduced cost of the project. Even with various demands that could lead to low funding cost and material cost, the buyers are to be benefitted. Check on the project delays due to policy logjam or funding gap would also benefit the buyers. Industry status and single window clearance are still our primary demand; industry status will ease our funding and hence help the buyers,” says Modi.
JC Sharma, VC and MD of Sobha Limited asserts the housing sector has reasonable expectations from the Union Budget 2021-22. Currently, tax reforms concerning affordable and mid-segment housing, joint development, and measures to encourage foreign investment are the need of the hour. He expects the government to ensure liquidity, provide easy access to funds and ensure longer repayment cycles that will support the real estate developers. To generate healthier housing demand, especially in the affordable and mid-housing segments, the INR 2 lakh tax rebate on housing loan interest rates under Section 24 of the Income Tax Act should be increased to at least INR 5 lakh.
“In the upcoming 2021-2022 Union Budget, the Government should revisit and rationalize the GST rates (allow Input Tax Credit), relax income tax norms (at least make one home income tax exempt both from the principal as well as the interest payment), offer single-window clearance, ease the liquidity pressure, and provide subsidies for private sector investment in affordable housing for a stronger economy. By bringing changes in GST and income tax policies, the end buyer will benefit. Provision of loans at a low rate of interest will also help boost home sales. As of now, developers are highly taxed in terms of raw materials, land purchase etc. If the government reduces tax on such items, the developers will be able to pass the benefit to the prospective homebuyers,” says Sharma.
Aditya Kushwaha, CEO & Director of Axis Ecorp points out that to boost the real estate industry, the government should consider reducing the taxes on the rental earning, it will help restore confidence among the investors to invest in the real estate and balance out inventory available in the market. Further, the Government should extend capping on PMAY interest subsidy, besides re-look at the timelines of measures that are already announced. Measures like extension of the standing moratorium period on home loans & RERA timelines must be re-looked.
“Affordable housing is very likely to get another booster shot. However, the upcoming budget also needs to focus on the larger market more than ever before, considering that homebuyers and investors need focused tax incentives to gain confidence in real estate investment. I am hopeful that the upcoming Budget will relax income tax norms, offer single window clearance and GST reforms. Additionally, helpful measures like easing out of the liquidity issues that are being currently faced by the sector will boost investment in real estate,” says Kushwaha.
Rajat Rastogi, Executive Director, Sales and Marketing, Runwal Group does not agree that the concerns & demands of the sector are not in sync with the home buyers. According to him, in any industry there are concerns and demands from stakeholders. And it is for this purpose that a regulatory framework in the form of RERA is in place. He expects the Government to safeguard the issue of liquidity being faced by developers through project loan restructuring measures. Alongside a GST waiver for under-construction projects will bring down property costs and help revive the sluggish sector and the economy.
“During the last budget, we saw ‘Housing for All’ by 2022 being talked about by the Finance Minister. Tax rebates for new homebuyers on interest repayment can do the trick of further incentivising the property sale for the real estate industry. An extension of the tax holiday on affordable housing by another year also helps achieve this. Also amending Section 24 (B) of the Income Tax Act to remove the 5-year clause for full deduction of interest on income from house property and making it effective from the year the loan is availed will provide further incentive,” says Rastogi.
In a nutshell, though some concerns of the builders and buyers appear to be in sync, the challenges before the Finance Minister are many. After all, it is not easy to make a please-all budget and also ensure that real estate in general and housing in particular fulfils its promise into performance and revives the economy.
Ravi Sinha
@ravitrack2media
Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.
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