Dian Real Estate has been a major contributor to its Economy and is poised for growth. After agriculture and railways, it is the third-largest employer in the country. More importantly, it supports many sub-sectors such as steel, cement, paint, and infrastructure, thus generating indirect employment opportunities and incremental economic value. With the country’s real estate space expected to be worth $1 trillion by 2030, the sector would be instrumental in fulfilling India’s vision of becoming a $5 trillion economy.
While affordable housing has been granted infrastructure status, the Government may consider granting such status to the entire real estate sector to enhance its borrowing capacity. As real estate continues to face challenges like backed-up inventory, lack of liquidity, delay in projects, and unstable demand, there is an urgent need for infrastructure status to be extended to the entire industry. The investments from international institutional funds will be exempted from taxes, as they will be termed infrastructure funds. This will eventually reduce borrowing rates for the developer fraternity, which is already marred by unsold inventories and higher costs of credit. In addition, it will help establish transparent business practices, inculcate a consumer-centric approach across the industry which, in turn, will drive growth for both the real estate space and the larger economy.
When the economy is anxious for recovery after the first, second and now Omicron wave, a benevolent approach towards the financially depleted demand side through rationalization of taxes that alleviate tax burden on the sector and providing much needed liquidity to boost consumer demand would be a welcome move. It is estimated that 76% of people are considering buying a property in 2022. A While the banking institutions have made the deal sweeter by reducing the home loan rates, few more incentives in the budget could make the deal irresistible and ensure faster recovery of the resilient sector.
Indian Cities should focus on Vertical growth. To accelerate vertical growth rewards to cities that relax their floor space index norms, additional central government funding to cities that undertake FSI reforms under the Smart Cities Mission. Massive emphasis should be on the infrastructure by announcing new flagship programs on similar scales of ongoing flagship programs such as Gati Shakti, AMRUT, Smart City, Skill India, PMAY, etc., and in this budget, there should be continuous infusion of budgetary allocations to the sector.
This budget should Introduce various amendments, relaxations, and extensions. From a residential real estate lens, tax holiday for homebuyers will go a long way in boosting the market sentiment, nudging fence sitters to take a decision. The sector can get boost thru few key relaxations
• To instantly infuse robust demand for housing, especially in the affordable and mid-segment categories, there is a need to hike the INR 2 lakh tax rebate on housing loan interest rates under Section 24 of the Income Tax Act to at least INR 5 Lakh.
• Deductions for home loan principal repayment, Personal tax relief, either via a cut in tax rates or revised tax slabs over and above the existing 80C, would be a welcome move. There is a specific need for income tax relief on the purchase of a second home, which will benefit homebuyers in a big way and stimulate the real estate sector.
• Serious relook of the definition of ‘affordable’ both from the value of the house as well as its size. Expand the definition of affordable housing beyond the price cap of INR 45 lacs in metro cities to INR 50 to 65 lacs.
• Eligibility of the Affordable Housing projects registration, to avail tax holidays to be extended from March 31, 2020, to March 31, 2023.
• Special Window for Completion of Construction of Affordable and Mid-Income Housing Projects (SWAMIH) stress fund to be enhanced and the subvention scheme should be reintroduced. Focus should be given to stalled/ stressed projects, apart from providing impetus to affordable and rental housing as we enter 2022. This will likely free up capital and provide liquidity to the sector.
• Amending rentals laws by way of financial engineering, like ‘Rental-cum-Ownership’ housing in which houses are initially offered on rent and ownership is transferred to the tenant once the cost of the unit is recovered, should be adopted.
• The applicable tax deducted at source on property transactions for NRIs should be reduced from the current 28.49%, and refund process time and process shortened.
• The rental yields are lower in residential properties compared with office or commercial assets. This can be compensated through tax incentives to developers and property buyers.
Another area that the union budget should look at is policies that will help soften the prices of input costs to aid further improvement of the affordability index thereby softening demand. Reduction in GST rates of key construction material, extension of credit linked subsidy scheme (CLSS) under Pradhan Mantri Awas Yojana for middle income groups until December 31, 2022, and enhancement in interest deduction limits on housing loans are also highly desirable.
The upcoming union budget should act as an enabler by accepting the long-standing demand of the commercial real estate sector to receive an input tax credit on GST collected from customers on rentals for built-to-lease properties. This shift would not only boost the CRE business, but also prove beneficial for various other businesses like retail, hospitality & hotels, malls etc.
Introduction of alternative asset classes in REITs, Relaxations in provisions for REITs and Offer tax exemption to investments in REITs starting with Rs 50,000 could fundamentally increase both retail and investor participation in the real estate sector and hasten recovery in commercial real-estate The country which is poised for growth in Life Sciences R&D. A special policy focus on this aimed at attracting investment in R&D real estate will provide a great platform for future.
To boost Commercial Real estate Reduction in stamp duty along with GST on TDR and joint development of commercial properties. Allocation of more funds towards IT infra spends involving digitization of land records in urban areas. To continue with the upsurge in demand for serviced office space, Special Packages, Tax relaxations and reduction of TDS rates from 10% to 2% and reduction of GST from 18% to lowest slab. Extension of Investment Tax Credit (ITC) under GST to developers as this would imply lower lease rates to tenants, reduce costs and benefit coworking players. Doing away with dual taxation to rationalize the difference between ready reckoner rate and market value would witness closures of more long pending transactions.
Fiscal support should be provided to companies that use recycled products made from waste. All these will go a long way in attracting investment, accelerating demand, and supporting a higher growth trajectory.
The author, Khair Ull Nissa Sheikh, is Joint President in Viridian Red and Executive Director of WTC India Services. She is WTCA Board Member. Views expressed are personal.