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Pre-Budget Expectations for the Real Estate Sector

Pre-Budget Expectations for the Real Estate Sector

Mr. Kaushal AgarwalChairman, The Guardians Real Estate Advisory

The year of 2021 in many ways, is expected to be the year of hope and revival. The real estate sector, like others businesses, is looking forward to many positive, innovative and path-breaking announcements in the budget this year. The budget to follow, more than ever before, needs to focus on pulling out the economy from one of its worst falls ever.

For the real estate sector the 20% deviation from the circle rates announced by the FM last year until June 2021 for homes costing upto Rs.2 crores, should not be time bound and needs to be extended for all real estate asset classes. The 1% GST for affordable housing needs to be extended for the entire sector until Dec 2023.

Further expectations from the Union Budget 2021

  • Deviation of 20% from circle rates should be extended across the sector and not limited to homes costing upto Rs.2 crores. The same will allow developers to offload the massive build-up of unsold inventory costing more than Rs.2 crores. Currently the major part of the unsold inventory is ready-to-move-in and falls in the luxury category.
  • There couldn’t be a more opportune year to accord industry status to the Real Estate sector as a whole; currently the same has been accorded only to affordable housing. This is a long-pending demand and can help developers raise funds at lower costs.
  • The government needs to push the well-capitalized NBFC’s to extend liquidity to the real estate developers who availed of the moratorium scheme during the lockdown. The same can have an adverse impact on the supply side if not addressed in the budget speech this year. Separately well-capitalised NBFC’s and banks should be pushed to extend credit and liquidity to the players in the sector who have good equity left in their stuck projects.
  • The government after the decent success of its SWAMIH fund, should announce several more funds that can help target specific real estate verticals that need liquidity support and high capital infusion like township developments and large format business parks.
  • The additional tax benefit for home loan interest announced in the previous budget now takes the tally to 3.5 lacs (Section 24 (b) & 80 EEA) for homes worth 45 lacs circle value. The same needs to be extended for homes costing upto Rs.1 crore to benefit the middle-class families residing in Metro cities.
  • The period of exemption from levy of tax on notional rent, on unsold inventories, needs to be extended to 3-5 years from 2 after receiving the Occupation Certificate. This is keeping in mind the slow reduction in unsold inventory levels, the lockdowns due to COVID-19 and lacklustre demand for real estate assets.
  • Extending no tax upto an income of Rs.10 lacs to all taxpayers for a year to give impetus to demand and consumption.
  • The new tax slabs announced by the Finance Minister in the previous budget should be allowed with the deductions permitted in the old tax regime. The move could singlehandedly impact as many as 3.75 crore tax payers. This move is crucial keeping in mind the fact that the government at the centre would want to focus on demand creation by leaving more in the hands of the Indian tax payers.
  • The reduced repo rate has helped reduce EMI’s for homebuyers; the government should permit further deductions in the income tax for individuals availing homes to buy affordable and mid-income homes.
  • Increasing the standard deduction to Rs.75000 for salaried professionals will benefit not less than 2.3 crore salaried taxpayers.
  • The government should declare tax free, the rent income received from any one owned house across the country. The same will see the young, new age investor pour money in Real Estate.
  • The real estate sector contributes the second most to employment in the country and is expected to contribute to the tune of 11% to the nations GDP. Keeping the same in mind specific threshold lead incentive for developers should be announced to encourage job creation in the category.

Mr Ashwin Reddy, Managing Director, Aparna Enterprises Limited

“Despite the current challenges, the building material industry is one of the few who are on a faster recovery trajectory and in fact the sector poised to witness 5% to 10% growth in 2022. However, for this growth to become a reality, calls for greater efforts from the government in the upcoming budget. Union Budget should focus on fastening infrastructural development and infusing more capital into this segment. Government should introduce policies like single window clearance, uniform taxation, structured interest rates and quick implementation of schemes announced under “Atmanirbhar Bharat” programme. This will improve the overall ease of doing business in the segment and open up new avenues of opportunities for the industry. The budget should also look at introducing new financing channels both from regular banking routes, NBFCs and private equity. Financing alternatives should be made available for all tenures – short, medium and long term. Additionally, reduction in income tax rates will increase consumer spending potential and this in turn can improve the growth prospects of the industry.”

Mr Rakesh Reddy, Director, Aparna Constructions & Estates

“The upcoming budget is the most anticipated budget as it is expected to provide the real-estate sector the much needed recovery and growth impetus. In fact, the industry is looking forward to see assertive and assistive measures from the government in the budget. One of the key aspects that the budget should address is granting of infrastructure status to the entire real estate sector. This will provide a huge boost. It will lead to financing being available to the developer at lower interest rates, which in turn, can make projects more affordable for home buyers.

Another crucial aspect that requires attention is extending the demand-generating measures. Last year, in order to provide significant relief to individual taxpayers, the government has proposed a simplified personal income tax regime wherein income tax rates will be significantly reduced for the individual taxpayers who forgo certain deductions and exemptions. In addition to this, tax relief measures which will increase disposable income for homebuyers, as well as the removal of tax surcharges on purchasing of homes. Expanding the availability of income tax deductions for home buyers can incentivise new buyers and widen the market opportunity.

Further, the current taxation structure for the real estate sector could perform better if streamlined and made comprehensive. Also the government should revisit the GST rates levied on the construction materials especially cement and other raw materials. In fact, rationalizing the GST rates of these commodities will bring down the burden of construction cost and the overall pricing also will be positively impacted.”

Nagaraju Routhu, CEO, Hero Realty

‘’The sector is basically divided into luxury, affordable, and mid-segment; each of these segments has its own set of expectations that needs to be addressed; the crux of demand from developers is almost same as all of them are demanding better streamlining of the sector through various measures and improvement in liquidity. Tier-II and Tier-III cities are also emerging as the realty hotbeds, which calls for proactive government intervention to see the realization of growth targets. “As we are going through the challenging times, we expect that FM’s Budget will truly be one-of-its-kind for the real estate sector too. It will be a tough call for the FM as she has to balance the market needs and financial prudence. We hope that the Government will focus on improving infrastructure in tier II and III cities, employment generation in cities beyond metros, and fund allocation for the stuck projects.”

Harvinder Singh Sikka, Managing Director, Sikka Group 

“Although, support to the sector was extended by RBI with low home loan interest rates and restructuring of loans, there remains a large gap to be filled for bringing about the lost momentum in the sector. As customer inquiries and buyers’ interest in property investment begins to rise, the price of raw materials needs to be addressed under this Budget. Realty is further associated with multiple ancillaries; any relaxation provided to this sector will ultimately benefit a great number of associated stakeholders.”

The affordable segment is dependent on the financial health of the common man, and hence the realtors expect that the common man will get some respite that could streamline their funds. The expectation is that the buyers will get loans at affordable rates and the moratorium on loan payments. Voicing the needs of the developers in the affordable segment, Pradeep Aggarwal, Founder & Chairman – Signature Global Group & Chairman – ASSOCHAM National Council on Real Estate, Housing and Urban Development, says, “Income Tax holiday for Developers in Affordable Housing was given for 2020. After struggling with the pandemic situation for the entire year, it would be encouraging for developers to get this rebate for another 2 years; banks should provide Project based (land & construction) funds at 6%; for first time homebuyers (in Affordable Housing) stamp duty exempt is required pan India; technology import (like aluminum shuttering used in AFW) for construction of affordable housing from other countries should be free from custom duty; stamp duty for land purchase in affordable housing should be reduced or removed for next few years to promote the launch of such homes; and GST on material and services used in affordable housing should be reduced to 50% or brought to single digit”.

Dhiraj Bora, Head – Marcomm, Paramount Group

“An aspect that can be looked into is the accountability of authorities, they must be analyzed by RERA since delays in granting permissions impact the delivery timelines of projects, which further brings liquidity crunch for developers and negative sentiment among the buyers. The reduction in real estate premiums and stamp duty for Maharashtra region has brought a windfall of sales there, now the NCR market having the widest variety in the residential segment awaits similar policy measures to be announced.’’

Achal Raina, COO, Raheja Developers

It is expected that the Government will take last year’s thought and action forward to come up with the announcements that can be implemented in the short term. “Real estate sector needs the support of the Government wants every Indian to have a house. Escalating costs and delays are the biggest hurdles; Government must step in through income tax incentives to the developers, rightly priced land, availability of land in major cities for affordable housing, and so on. The list of expectations is endless because the goal is large – to provide houses to everyone in the Budget that they can afford and still not compromise on the amenities or the deadlines given to the buyers.”

Dhiraj Jain, Director, Mahagun Group

“Currently, the deduction for principal repayment of housing loan is Rs 1,50,000, and the deduction is clubbed with other tax saving instruments. We hope that the Government will increase the deduction under section 80C for principal repayment of housing loan from the existing limit of Rs 1,50,000; this will encourage the home buyers to expedite their buying decision.”

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