The year 2022 has been a robust year for Indian real estate. The upcoming budget arrives close at heels of the rising housing loan interests, elevated inflation levels, and slow external demand. According to real estate consultants Colliers, the upcoming budget should “focus on stirring demand for affordable housing, sops for the start-up community and incentivise sustainability in the real estate sector.” With strong demand for property witnessed through 2022, the Union Budget, they expect should provide a stimulus to the stakeholders to let the momentum continue through 2023. Here are seven points up consideration when it comes to the sector, says Ramesh Nair, CEO, India, Colliers.
Steps to boost demand in mid and affordable housing segment
Benefits should be provided for housebuyers to boost demand in this segments and further full tax holiday under Section 80IBA should be continued. It was earlier extended till March 31, 2022. This can provide a boost to rental housing in the affordable segment.
Tax exemption on rental income
There should be 100 per cent exemption for rental income up to Rs 3 lakh for houses costing up to Rs 50 lakh to incentivize owners to rent out their houses to the targeted segment.
Separate deduction for principal repayment
There should be a separate deduction for the repayment of the principal amount of the home loan, which is currently clubbed under section 80C. At present, the ceiling of the deduction for principal repayment of housing loan is Rs 1,50,000 along with other tax saving instruments. Alternatively, the overall ceiling limits of section 80C can be raised up to Rs 500,000 which can further spur investments.
Softening input costs load
Raw material costs have been constantly on the rise for the last three years when they touched the highest levels on March 22 led by supply chain constraints. The average cost of construction rose 10-12 per cent YoY. The government should take steps to reduce the GST on such materials especially cement which corresponds to 28 per cent of the total cost. Input Tax Credit (ITC) can also be levied on raw materials to boost commercial and residential development.
Tax benefits for REITs to attract more investment
The presence of high-quality tenants has led to uninterrupted revenue for the REITs, ensuring stable returns to unit holders. The budget should make provisions for tax reductions in REITs by reducing TDS rate from the present 10 per cent. This will give a major thrust to the sector and improve the flow of working capital. Further, investments made in REITs can get an exemption under section 80C, starting Rs 50,000, this can provide a thrust to the investors.
Start-up-centric initiatives for higher investments in innovation and tax breaks
Start-ups can be offered with policies that can reduce input costs, enhance liquidity, and stimulate financial enclosure for certain sub-sectors. The budget can infuse certain assistance to save time and financial savings in forming a business. For instance, registering for GST, obtaining MSME certifications, the number of tax filing and tax slabs for firms qualifying under Start-up India Scheme can be done through a single window clearance system. A separate tax and regulatory framework can be created for Private Equity or Venture capitals and start-ups.
Incentivise the development of sustainable buildings
The government can provide incentives to companies that are engaged in climate-responsive projects. Developers and investors who are engaged in building green buildings can be exempted from income tax for any 10 consecutive years in a 15-year block. The sovereign green bonds announced in the previous budget should be further given a push in during 2023. As India gears up to implement the strategies addressed during COP 27, a robust sovereign green bond framework would aid in raising funds and improve investor confidence. The government can also create a 5-year plan to steadily scale up the usage of green bonds.
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