What Can The Real Estate Expect From Budget 2022-2023
The Real Estate sector in India grasps immense potential and boundless opportunities for growth and development. It is the second-highest employment generator in the country after agriculture. This sector accounts for 6-7 per cent of the economy and is interlinked to as many as 250 allied sectors. It is estimated that the Realty sector in India will contribute 13% to the country’s GDP by 2025 and is expected to reach US$ 1 trillion by 2030.
The sector is also expected to attract more non-resident Indian (NRI) investment, both in the short term and the long term. Bengaluru is expected to be the most favoured property investment destination for NRIs, followed by Ahmedabad, Pune, Chennai, Goa, Delhi and Dehradun.
In the first quarter of the year 2021, the demand for India’s residential real estate has exceeded pre-COVID levels. Cities such as Ahmedabad and Greater Noida have recorded 7 per cent and 13 per cent quarterly growth, respectively. Despite the pandemic, Hyderabad continues to witness consistent price growth in the realty sector. The average rate of newly-launched projects in Hyderabad increased 5 per cent, year-on-year during October-December 2020. Thus, due to a consistent increase in average rates, property prices are the highest in this pharmaceutical hub, presently. Hyderabad has also reported the maximum increase of 39 per cent year-on-year growth in housing sales during the January-March 2021 period. The cities of Bengaluru and Chennai have also witnessed a 2% annual increase in average values.
The supply has witnessed a growth of 8 per cent on a pan-India level. The residential real estate market has been recovering well from the impact of the COVID-19 pandemic and buyer-search volumes have been moving consistently upwards for both buy and lease since the last quarter of 2020.
Now as we have entered in 2022 and few days are left for the budget, let’s see what the Finance Minister Nirmala Sitaraman has in her platter to offer for the real estate industry. While the real estate sector is looking at a housing demand revival in 2022, it expects Budget 2022 to play a compassionate and a facilitating role. Relaxation in taxes to improve the real estate sector and waivers or reductions on GST, a change in the definition of affordable housing are among other expectations from the upcoming union budget.
The RBI and the government have proactively aided the sector with various demand boosters. The stamp duty cuts, tax benefits extension on affordable housing in last year's budget were strong moves that made a difference.
Despite rising inflation, the RBI kept the repo rates unchanged for the last nine consecutive bi-monthly monetary policies, thus extending the benefit of lower interest rates to homebuyers. These measures helped the housing sector, which plays a significant role in the overall economy, to maintain an even keel during a very rough phase.
With regards to the upcoming Union Budget 2022-23, some of the significant moves which would help spur up residential demand include:-
1) Home loan deduction limit (u/s 24): There is a need to hike the Rs 2 lakh tax rebate on housing loan interest rates under Section 24 of the Income Tax Act to at least Rs 5 lakh. This could instantly infuse robust demand for housing, especially in the affordable and mid-segment categories.
2) Deductions for home loan principal repayment, over and above the existing 80C: Personal tax relief, either via a cut in tax rates or revised tax slabs, would be a welcome move - especially since the last increase in the deduction limit under Section 80C (to Rs 1.5 lakh a year) took place in 2014.
3) Redefine the definition of affordable housing criteria to extend the benefit of additional deductions to more buyers: According to the Ministry of Housing and Urban Poverty Alleviation, affordable housing is defined based on the property size, its price, and the buyer's income. For instance, affordable housing is a unit with carpet area up to 90 sq. m. in non-metropolitan cities and towns, and 60 sq. m. in major cities and valued up to Rs 45 lakh for both. The central bank's definition, on the other hand, is based on the loans given by banks to people.
4) Extend benefits of Affordable Housing: Affordable and rental housing got a big boost in the last Union Budget, with the government extending the period for extra deduction of Rs 1.5 lakh for loans up to March 31, 2022. A further extension of this benefit will ensure buoyant demand for affordable housing in 2022.
5) Rental housing reforms: Affordable rental housing can help achieve housing for all targets by creating a housing stock surplus. In order to achieve that relaxation like enhancing HRA tax exemption, permit rental income to be made fully tax deductible and, real estate companies should be exempted from the burden of tax on estimated income from house property held as stock in trade. Alternatively, no rent should be taxed for the period up to five years from the end of the financial year in which the completion certificate of construction of the property is obtained. Industry demands increase in standard deduction to widen from 30% to 50% along with accelerated depreciation rate in commercial real estate to spur development of rental housing needs of customers.
6) Liquidity step up: In order to revive stalled projects, the much lauded initiative of setting up a stress fund like SWAMIH was remarkable. However, the amount allocated is insufficient to revive major projects and hence by enhancing the quantum of stress funds up to 1,25,000 crores will be effective. This will reduce overhang of unsold stock and deliver homes to long starving homebuyers. Another measure includes permitting entities to raise finances via external commercial borrowings in the real estate sector to open up alternative low-cost funding avenues and bridge the funding gap. Industry expects a lifting up ban on subvention schemes as it didn’t favour homebuyers. A large portion of them do not have capacity to manage dual financial outlay in form of house rent and EMI on home loan.