Budget 2020: The real estate sector was pinning its hopes of revival on affordable housing after the last budget announcements in July 2019. But the truth is that the sector failed to come back to its elements despite the initiatives in the budget -- including reducing the homebuyers' burden, increasing investor confidence, and creating opportunities for the developers.
The government's budget focus on infrastructure development of Tier 2 and 3 cities was expected to trigger the next round of urbanisation in the country and create large scale employment but it has failed to gain size so far.
FULL COVERAGE: Union Budget 2020
In Budget 2019, the government continued with its thrust for affordable housing by proposing to set up around 2 crore houses under Pradhan Mantri Awas Yojna in two years. Amongst the notable announcements to boost real estate sector was the announcement of additional Rs 1.5 lakh deduction in income tax on home loans up to Rs 3.5 lakh for affordable housing. This was expected to drive the stagnant sales and bring the fence-sitters back into the market.
The new reforms for rental housing were expected to boost the sector. The high cost of houses and property taxes has been leading to a low rate of return from rental housing. The move has also failed to report any progress.
The use of government's land parcels for public infrastructure and affordable housing was expected to narrow the demand-supply gap. But the country has been going through a demand paralysis in the last one year, when no such big land disposal happened.
The decision to allow foreign institutional investors to subscribe to investment trusts -- REITS and INVITs -- hasn't helped the sector because of lack of conviction of investors in Indian real estate.
How can the sector be revived?
1. First off, industry status to real estate sector can go a long way in reviving the sector. It is expected to enable developers to cut capital costs and pass on the benefits to consumers.
2. The sector, which is struggling to deal with multiple government agencies for project approvals, wants single window clearance facility to make the project implementation faster.
3. Multiple rates or taxes need to be cut into a single standard GST rates.
4. The abolition of stamp duty or its incorporation under GST.
5. Reserve Bank of India (RBI) in 2019 reduced the policy rates by 135 basis points. But the scheduled commercial banks didn't follow suit. So the average marginal cost of lending rate (MCLR) of banks has come down by only 64 bps. The lower interest rates will help resolve the existing liquidity crisis and boost housing demand.
6. Reduction in individual income tax will be another boost to the sector as it will reduce financial burden of the buyers and increase their disposable income.
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