Housing sales across top 8 cities dip 6%. What's giving buyers and builders cold feet?

Housing sales in India's top eight cities dropped by 6% in the April-June period compared to the previous quarter due to caution among builders and investors during the Lok Sabha polls, according to PropTiger. 

The platform, part of REA India, released its quarterly data on housing demand and supply on Thursday.

Sales fell to 113,768 units in April-June from 120,642 units in January-March. However, compared to the same period last year, sales rose by 42% from 80,245 units.

"Demand for homes moderated during the general elections, but consumer sentiment remains positive due to strong fundamentals," said Vikas Wadhawan, Group CFO of REA India and Business Head of PropTiger.com. 

He noted that developers were also cautious, resulting in fewer new launches in half of the cities analyzed.

Wadhawan expressed optimism for stronger sales numbers in the coming quarters, particularly during the festive months, due to expectations of a pro-investment Union Budget.

The real estate industry in India is keenly awaiting potential reforms, tax reliefs, and incentives that could drive growth and address long-standing issues in the upcoming Budget.

In the 2024-25 Interim Budget, Finance Minister Nirmala Sitharaman announced an expansion of the PMAY-U (Pradhan Mantri Awas Yojana – Urban) scheme, adding 2 crore more houses. CA (Dr.) Suresh Surana outlined several tax incentives he expects to boost the real estate market:

Section 80C: This section allows taxpayers to claim deductions up to Rs 1.50 lakh for various expenses, including stamp duty and principal repayment of loans for residential property. It's anticipated that the government may adjust this threshold to account for inflation and include investments in REITs under 80C deductions.

Section 24(b): This provision lets taxpayers claim interest on loans for two self-occupied properties, with a combined limit of Rs 2 lakh. There is an expectation that this limit will either be removed or increased to at least Rs 4 lakh.

Capital Gains Taxation: The government might consider easing capital gains taxes on REIT units. Currently, REIT units are classified as long-term capital assets if held for over 36 months. Reducing this period to 12 months would align it with listed shares. Additionally, including REIT investments under Section 80C could enhance retail investor participation.

New Tax Regime: Individual taxpayers under the new tax regime cannot set off house property losses against other income heads. Allowing this offset, especially for those with housing loans, would incentivize more individuals to adopt the new regime.

Tax Benefit under Section 80-IBA: This section offers deductions for profits from affordable housing projects. Extending the project approval period to March 31, 2024, and increasing the tax benefit period from 5 to 7 years could stimulate investment in affordable housing.

Tax Deduction on Home Loans: Introducing interest subvention schemes or tax deductions on home loan interest for first-time buyers could boost demand. Thoughtful implementation of these measures could foster growth and stability in the real estate sector, encouraging investment in housing and infrastructure development.