Table of Contents
- 1. Monetising PSU land banks and addressing banks’ stressed asset problem
- 2. Support to migrant workers and labourers will help realty sector growth
- 3. Reduction in customs duty on steel to make new homes cheaper
- 4. Increase in safe harbour limit for the primary sale of residential units
- 5. Proposals on REITs and InvITs
- 6. Tax benefit for notified affordable rental housing projects and extension of Section 80EEA
The real estate sector, its buyers and all other stakeholders, had put forward several demands and expectations from the Union Budget 2021-22. Some of their demands were met, whereas some were missed. The realty industry has broadly lauded the announcements in Budget 2021. Here is the list of announcements that may directly or indirectly impact the realty sector in the near future and over the long-term.
1. Monetising PSU land banks and addressing banks’ stressed asset problem
Finance minister (FM) Nirmala Sitharaman announced that a National Monetisation Pipeline of potential brownfield infrastructure assets would be launched and an asset monetisation dashboard would also be created, for tracking projects. PSUs like NHAI, Railways, PGCIL, etc., would take measures towards monetisation.
According to Shishir Baijal, chairman and managing director, Knight Frank India, the country has faced an unprecedented event with the COVID-19 pandemic, which warranted tough policy measures while walking the fiscal tightrope. “In this context, the budget announcements relating to monetisation of infrastructure and real estate assets, will help increase private sector participation and also assist the government in enhancing fund flows for the development of critical infrastructure assets,” he says.
Setting up of a Reconstruction Company and an Asset Management Company, have also been proposed in the Budget 2021. The proposed institution will take care of stressed assets for banks.
“Provisions like establishing ‘bad bank’, would expedite the resolution of stressed real estate assets, while monetisation of PSU land bank will bring substantial land supply in major cities,” adds Anuranjan Mohnot, managing director and CEO, Lumos Alternate Investment Advisors.
2. Support to migrant workers and labourers will help realty sector growth
The government has announced a ‘one nation one ration card’ scheme that will help migrant workers to claim their ration from anywhere. The FM announced that those staying away from their families could partially claim their ration where they were stationed, while their families, in their native places, could claim the rest.
In the Budget, it was also proposed to launch a portal that would collect relevant information on gig, building and construction workers, to help formulate health, housing, skill, insurance, credit and food schemes for them. Experts point out that as the realty sector is labour-intensive, health, insurance, skill and credit support to the labours, will ensure the long-term availability of workforce for the sector.
“The single registration system for migrant workers is a positive aspect for companies to reduce the hassle and focus on the larger development,” maintains Rohit Poddar, managing director, Poddar Housing and Development Ltd and joint secretary, NAREDCO Maharashtra.
3. Reduction in customs duty on steel to make new homes cheaper
Steel is a major constituent of the cost of a realty project. Over the last few months, steel prices have increased significantly. Home buyers and developers are financially stressed currently, following the COVID-19 pandemic. Home buyers are not in a position to pay a higher price for properties and it is not viable for builders to absorb the hike in the input cost. Therefore, the government’s move to reduce the customs duty on steel to 7.5% in Budget 2021, will provide some relief. “Touching upon the steep hike in prices of steel and other metals, the FM also announced a cut on customs duty on copper scrap from 5% to 2.5%. The availability of essential construction materials with regulated pricing, is crucial for the sector’s growth,” maintains Jaxay Shah, chairman CREDAI National.
4. Increase in safe harbour limit for the primary sale of residential units
“As a part of the incentives, the government has increased the safe harbour limit from 10% to 20%. The Budget has given tax holidays, tax exemptions and an additional deduction on home loan interest. This will give a boost to affordable housing and the entire industry, which has been reeling for the past two years,” explains Amit Goenka, MD and CEO at Nisus Finance.
5. Proposals on REITs and InvITs
The FM has proposed to exempt dividend payments to REITs and InvITs from TDS. “Also, the proposal to allow debt financing of InvITs and REITs by foreign portfolio investors (FPIs), will ease access of finance to InvITs and REITs, thus, boosting funds for infrastructure and real estate sectors,” says Rajiv Parikh, president, CREDAI Maharashtra.
6. Tax benefit for notified affordable rental housing projects and extension of Section 80EEA
The government has announced an extension in the last date to avail of the tax deduction benefit under Section 80EEA by one year. The FM also proposed to extend the tax holiday for affordable housing projects under Section 80IBA by one more year. To promote affordable rental housing for migrant workers, the FM announced tax exemption for notified affordable rental housing projects.
Says Abhishek Kumar, co-founder, COVIE: “The proposals, to extend the exemption available for the purchase of affordable houses and to provide tax exemption for affordable rental housing projects which are focused on the migrant workers, will provide a stimulus to rental housing. It will lay the framework for the built-to-rent asset class. This has the potential to increase the rental yields with more greenfield housing projects being launched with a focus on leasing and also increase investors’ and developers’ participation.”
While several long-standing demands of the realty sector were not addressed again in the Budget, a big effort has been made towards creating demand and to boost growth, amid the serious COVID-19-induced economic slowdown.
Budget 2021 expectations: Home loan and tax benefits that can help property owners and buyers
What can the finance minister do, in Budget 2021, to make it easier for prospective buyers and those who have already made the purchase, to own properties? We examine…
January 31, 2021: 2020 was an unprecedented year, due to the COVID-19 outbreak and its consequential health and financial setback for tax payers. Many of those who had already bought homes, faced difficulties in EMI repayment, because of job loss or salary cuts. Prospective home buyers faced challenges in arranging the down-payment for buying a new home. Several realty projects were stalled and new launches ceased amid the economic slowdown. After witnessing so many difficulties in 2020, home buyers and realty experts are hoping that finance minister Nirmala Sitharaman will announce measures to support the demand side in the upcoming Budget 2021.
Rationalisation of income taxes in Budget 2021
Expanding the income tax deductions, can enable buyers to invest in property and at the same time, widen the market opportunity. The government should consider enhancing the loan-to-value (LTV) ratio up to 90% across the board, for home loans for affordable houses of Rs 30 lakhs or less, suggests Niranjan Hiranandani, national president, NAREDCO. The same facility should be extended to MIG and HIG housing, he adds. “The current interest deduction on housing loans under Section 24 of IT Act 1961, of Rs 2 lakhs, should be removed to incentivise home buyers. Long-term capital gains tax should be brought to 10% (at par with the provision of Section 112 for equity shares) and the period of holding house property should be reduced to 12 months from the existing 24/36 months, to qualify as a long-term capital asset,” says Hiranandani.
Rationalisation of GST
According to Rakesh Reddy, director of Aparna Constructions & Estates, the current taxation structure for the real estate sector should be streamlined. “The government should revisit the Goods and Services Tax (GST) rates levied on construction materials, especially cement and other raw materials. Rationalising the GST rates of these commodities will bring down construction costs and the overall pricing will also be positively impacted,” explains Reddy.
The industry has also been demanding that the government allow input tax credit on GST that is applicable to the realty sector, as well as uniformity in the GST across different housing categories. Rationalisation of GST rates, they argue, will make property rates lower and make it more affordable for home buyers.
Stamp duty relief on property purchase
Gaurav Jain, a Jaipur-based realty investor, points out that “Each time a property changes hands, stamp duty is levied on the transaction and the property price goes up to that extent. It makes resale properties expensive. Stamp duty on the resale property should only be levied on the price appreciation. Also, there should be uniformity in the stamp duty across different states. The centre should consult with state governments, for a consensus on this matter.”
Extension of the CLSS benefit and Section 80EEA deduction
In 2020, the government had extended the last date to avail of the Credit-Linked Subsidy Scheme (CLSS) facility and the tax deduction benefit under Section 80EEA to March 31, 2021, following the Coronavirus pandemic. With many prospective home buyers delaying their home purchase plans, in the absence of existing tax and subsidy benefits, it would be more difficult for them to buy their home. To make it easier for such buyers, the government could consider extending the last date for these schemes by another year.
Longer repayment period on home loans
Many existing home buyers and prospective home buyers are facing a liquidity crunch, due to the ongoing economic crisis. If the government takes the initiative to increase the maximum loan tenure to 35 years (presently, maximum loan tenure allowed is 30 years), i.e., five years more than the existing tenure, it will lower the EMI burden on home loan borrowers who are facing a financial crunch. The loan repayment tenure for elderly home buyers could also be increased by five to 10 years.
Also read about the policy changes that can help developers and home buyers in Budget 2021
|Ramesh Nair, CEO and country head (India), JLL, suggests additional measures that will aid in spurring consumption and investment, thus, sustaining growth over the next few quarters:
Trickle-down benefits for the realty sector in the Budget 2020
February 1, 2020: The much-awaited Budget is over now, and the people are now busy assessing its impact on their life. There is a mixed response coming from different segments in the realty sector. Some are happy with the budget announcement, and some are disappointed. We tried to look into some of the budget announcements, which could have a trickle-down benefit for the realty sector, directly or indirectly. Let’s find out which are those announcements.
Big push to skill development- to augment realty sector growth
“We are glad to note the INR 99,300 crore outlay for the education sector in 2020-21 and Rs 3,000 crore for skill development. This is in line with our expectations on large scale reforms and radical innovation in the education sector. This is linked to the creation of effective bodies to regulate the current system and focus on vocational and skills development, linking to apprenticeship/internship and professional skills, through newly proposed and online education platforms. This ties back well, with the Government’s intention on making India a global education hub, driving ECB and FDI in the sector. We also hope to see due attention being extended to programs and skills linked to real estate, construction, and infrastructure”, says Mr. Nimish Gupta, MD, RICS South Asia.
The realty sector requires a large number of the skilled workforce to boost growth. Without a skilled worker, it isn’t very easy to use new technologies in the construction sector.
The Government has proposed to allow young engineers, management graduates and economists to work under internship program with urban local bodies. Experts believe that this move will allow huge exposure to budding young work force and at the same time provide experienced talent to the realty and infrastructure sector.
Date extended for 80EEA
There is a large number of first-time homebuyers, which requires tax support from the Government. Often the first home buyers look for an affordable home. In the budget 2019, the Government introduced tax benefit u/80EEA that offers deduction against interest on a home loan up to Rs 1.5 Lac provided the property value as per stamp duty is not more than Rs 45 Lac. However, the benefit was going to last on 31st March 2020. In the budget 2020, the Government announced to extend the deadline to 31st March 2021 to avail the deduction u/s 80EEA. It is expected to support the consumption of affordable housing and boost the demand for the ailing realty sector.
Reduction in tax woes and change in DDT rules
“The Budget also announced a host of initiatives to reduce taxation woes, including the proposal that buyers and sellers would be taxed simultaneously only if the transactions are priced 10% below the circle rate. To reduce tax burden of companies and to attract investments, the Dividend Distribution Tax (DDT) of 15% on companies has been removed, and dividends are now planned to be taxed at the recipient’s applicable rate. Similarly, the Budget proposes to exempt co-operative societies from the Alternative Minimum Tax (AMT) as they contribute to the credit supply for the manufacturer. These provisions are likely to help unlock liquidity while also augmenting manufacturing and generating employment”, says Sankey Prasad, Managing Director and Chairman at Colliers International India.
Big push to infrastructure growth, opening up more to the FDIs, infusing liquidity in the economy, and focusing on more employment generation are few of the focus areas during the Budget 2020, and these announcements could boost the realty sector growth.
Demand not fulfilled?
There are some long-standing critical issues that the realty market eagerly waits to get fulfilled year after year.
Mr. Sanjay Dutt, MD & CEO, Tata Realty and Infrastructure Limited, “Overall, we would have liked to see a few of the several long-standing needs of the real estate sector be addressed such as granting of the industry status, one-time rollover, tax on unsold inventory, tax to individual investor for notional income on second or third home, offset of loan interest from income, developer subvention, and RERA as single body for customer grievances. After witnessing the slew of supportive initiatives last year, we had high expectations from the first Budget of the decade to be able to bring the real estate sector back on the path of sustainable growth. We are hopeful to see the Government take measures to correct these in the future.”
The trickle-down benefits may not immediately boost the growth in the realty sector, but in the long-term, these steps can help for a stable recovery. With the Government focusing on increasing the consumption in the economy, there is always scope for a series of post-budget announcements for a quicker recovery in the realty market.