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The Union Budget 2021-22 offered three significant boosts to the real estate sector – extended tax benefits for the affordable housing segment, debt financing provisions for REITs and InvITs and more funds for infrastructure development.
While the above initiatives are a positive step for the real estate sector and critical to its revival, Budget 2021 did not unveil any measures that could improve consumer sentiment, increase demand and bolster growth.
Infrastructure status to real estate
An infrastructure status to a sector, allows loans to be acquired at lower interest rates. If financing is made available to the developers at lower interest rates, projects would become more affordable for the home buyers.
We have witnessed how the granting of infrastructure status had a positive impact on the affordable housing segment and widened the market opportunity over the past few years. It is clear that any support provided to an industry, especially one that provides millions of jobs across India, would have a multiplier effect on the entire economy. The granting of infrastructure status would also have helped non-banking financial companies (NBFCs), housing finance companies (HFCs) and banks to recoup losses on non-performing assets (NPAs).
As we emerge from the COVID-19 pandemic, the real estate sector is in dire need of liquidity and supportive measures to aid its revival. The recent Budget would have been an opportune time to grant infrastructure status and reinvigorate the sector.
Re-introduction of GST input tax credit
The Goods and Services Tax (GST) is another area that requires crucial reforms. Another expectation of the real estate sector was the re-introduction of the input tax credit (ITC). The current GST structure is not efficient. Bringing back the ITC during the construction phase, would be a positive step for the commercial real estate segment. ITC would allow developers to offset the GST paid on input materials, against GST on rent from the completed project. This would help commercial developers who retain assets and rely on leasing or rentals, for income. Currently, developers must pay GST on input materials during construction, as well as on rental income. This effectively creates a dual tax levy. The re-introduction of ITC is even more critical to the overall sector, as commercial realty is one of the fastest-growing segments in India.
Streamlining project approvals is a priority for the sector. Approvals can take up to a year or more, which cause project delays and adversely impact returns. The implementation of single-window clearances, would streamline this process. This would ensure that project approvals are processed more quickly, resulting in reduced construction costs, thereby, substantially reducing property costs.
More benefits for commercial real estate investments
There is rapidly growing interest in commercial real estate investments, with the introduction of real estate investment trusts (REITs) and other similar fractional ownership mechanisms. The sector would benefit tremendously, if the benefits provided to REITs would also be extended to fractional ownership. This would encourage more people to invest and provide more access to funds.
Implementation of emergency funds
The government has allotted emergency funding for stalled projects in previous proposals. It is crucial to implement these emergency funds immediately and provide liquidity to developers, in order to complete their projects. The emergency funds would mitigate the near-term effects of the downturn and allow high-priority operations to continue. It will also boost consumer sentiments and ensure that projects are delivered in a timely manner.
(The writer is director, Aparna Constructions and Estates)