In the opening sections of her speech presenting the much-awaited Union Budget 2020, Nirmala Sitharaman stressed that “Everything that the Government does and aims to do is for this pyaara vatan.”
Lines that were clearly meant to reassure a country that until early 2019, carried the tag of the ‘world’s fastest-growing economy’ with pride. But this year, the scenario is very different. The Indian economy is desperately trying to get back on its feet after a year of being in the doldrums. Expectations in the real estate sector ran high as it hoped the Budget would lift slowing consumer demand and infuse liquidity with its announcements.
Now that the Budget is out, has it pleased or disappointed the real estate sector?
Incentives for affordable housing In the previous Budget, the homeowner or builder obtaining income from an affordable housing project that was approved by 31st March 2020 was eligible for a 100% deduction of profits under Section 80-IBA. This year, the deadline for loan sanction has been extended by another year to enable more people to avail of the benefits and provide more incentives for affordable housing projects.
Further to this, any profits availed by developers of affordable housing projects approved by 31st March 2020, now stand to gain a tax holiday. In the previous Budget, the Government had announced a deduction of up to Rs 1.5 lakhs on interest paid for affordable housing home loans. Aimed at giving a fillip to the supply of affordable housing, developers and homeowners can now avail of the deduction until March 2021.
Additionally, “The new personal income tax regime will leave higher disposable income in the hands of taxpayers (those who opt for the new tax regime), which is likely to increase the demand for affordable homes (considering the change in tax slabs in only for people earning less than INR 15 Lakh),” explains Sunil Mishra, Chief Executive Officer – TRESPECT.
But not all were pleased with these proposals. “While we appreciate the Government extending an additional Rs 1.5 lakh tax benefit on interest paid on affordable housing loans to March 2021, we still feel that this incentive should also be provided to the non-affordable housing segment where millions of middle class buyers, especially those living in metros like Delhi, Mumbai and Bangalore, can take the plunge as the cost of even a 2 bedroom apartment in these cities can cost Rs 1 crore and above,” says Amit Modi, Director, ABA Corp and President (Elect), CREDAI Western UP.
Infrastructure boost
There was a major thrust on infrastructure with the Finance Minister announcing various
initiatives worth Rs 1.7 trillion including:
● Setting up five new smart cities
● Allocation of more funds towards transport and warehousing
● Focusing on 6500 projects across sectors under the National Infrastructure Pipeline (NIP) to boost the economy
● Building 100 new airports by 2024
● Faster development of highways
The real estate industry seems to be happy overall with the focus on infrastructure as it is expected to revive the building segment considerably.
“The Government’s proposal for five new smart cities in collaboration with states via the public-private partnership model is a great move to leverage not just the funding potential of private players but also their experience of making cities livable and sustainable,” says Mohit Goel, CEO, Omaxe Ltd.
Agrees Ashish Bhutani, CEO, Bhutani Infra, “Focus on infrastructure and economic growth in this budget will lead to more activity in the commercial segment as the demand for offices will grow.”
Tax relief for real estate transactions In the past few years, housing markets have undergone extreme price corrections due to the substantial slump in the sector. In some cases, the market value of properties had dipped well below the circle rate, which is the minimum value at which a property can be sold or purchased. To provide relief to homebuyers and sellers, the Finance Minister proposed doing away with tax liabilities in cases where the difference between the actual transactional value and the circle rate of a property is less than 10%. Slated to come into effect by 1st April, 2021, the move is an improvement from the 5% differential that was announced last year.
Says Amit Modi, “One of the major welcome steps in this Budget was that earlier, any taxing income from capital gains in respect of transactions in real estate if the consideration value is less than the circle rate by more than 5% the difference was counted as income, both in the hands of the purchaser and seller. Increasing the limit to 10% now will definitely minimise hardship in the sector and provide relief for both
developers and buyers.”
Easing debt recovery for NBFCs
The Budget has a few constructive measures aimed at NBFCs, which were facing numerous struggles with liquidity. A well-appreciated step was the proposal for a reduction in the limit for debt recovery from Rs 500 crore under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act 2002 to an asset size of Rs 100 crore or loan size from the current Rs 1 crore to Rs 50 lakhs. “Liquidity and availability of finance is the biggest issue confronting the real
sector today. In this context, the assurance given by Hon’ble Finance Minister that NBFCs and HFCs will not face any liquidity crunch will help calm the nerves for sure,” approves Mohit Goel.
Addressing the cash crunch crisis that NBFCs and Housing Finance Companies face, the Finance Minister has also proposed a Partial Credit Guarantee Scheme, which will guarantee securities floated.
Simplification of tax
With the aim of simplifying existing tax structures and providing relief to individual taxpayers, the Government has proposed significant reductions in personal income taxes for those who don’t avail of exemptions. The proposal suggests a decrease in the income tax from the current rate of 20% to 10% for salaries between Rs 5 lakhs and Rs 7.5 lakhs. For those in the income bracket of Rs 7.5 lakhs and Rs 10 lakhs, the tax will be reduced from 20% to 15%. For individuals earning between Rs 10 lakhs and Rs 12.5 lakhs, and Rs 12.5 lakhs and Rs 15 lakhs, the tax will be reduced to 20% and 25% respectively from the current rate of 30%.
The Government also hopes to propel growth and facilitate ease of living with these proposals but does not have a targeted effect on housing.
Final thoughts
With its focus on the rural sector, infrastructure, and personal taxes, the Government seeks to augment employment opportunities, consumption, and investments. Real estate activity will spike in parts with the development of smart cities, new infrastructure projects, and data centres. However, the real estate industry continues to wait for resolutions on crucial issues like single-window clearance and land reforms that remain unaddressed.
“Considering the overall health of the real estate sector, it would have helped if the Government had given a little more incentive to both homebuyers and developers,” opines Dhiraj Jain, Director, Mahagun Group.
In conclusion, according to Anuj Puri,Chairman, ANAROCK Property Consultants, “Apart from the affordable housing push and personal tax relief, no major benefits came in for resolving the current housing mess.”
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The government did not address concerns pertaining to banks not passing on the benefit of interest rate cuts by the RBI, to home loan borrowers. The long-standing demand of a single-window clearance for the real estate sector and granting of industry status to sector, etc., also remained unaddressed. However, this being the second budget (i.e., after the interim budget) in a year, there was little scope to make a big move. The government has presented its vision for the next five years, in line with becoming a USD 5 trillion economy, in the near future.