The realty sector is not doing as good as in 2008-09. So, the finance minister will have to find ways to promote savings. It is pertinent to note that national savings rate has dipped to 30 per cent from a high of 36.9 per cent in 2008. The Governor of RBI too has advocated increasing the savings rate and as a corollary advocated to increase the tax deduction limit under section 80C. Though the government raised the limit for income tax exemption by Rs 50,000 in its previous budget in July, given the statistics for savings, the government needs to aggressively promote savings by introducing innovative and extraordinary policy decisions.
The matter of interest rates on home loan is inseparable with the issue of individual savings. Though reducing benchmark rates is prerogative of the RBI, government can announce various measures to reduce the burden of EMIs on home buyers. Tax break to the housing sector and additional rebate on housing loans are two such ways. The budget will also be an opportunity for the government to create elbow room for the apex bank for substantial reduction in policy rates by taming inflation rate. Overall, the tax system should incentivize housing.
Equally important is the issue of rental housing. Given the fact that about half the population in metro cities lives in rented accommodation, there is an urgent need to create a buffer of rental homes till the government is able to provide housing to all.
For this, government needs to adopt two-pronged strategy. On the one, it should introduce tax break for rental housing, on the other, the limit for HRA head in salary slips for tax exemption needs be increased. The current limit does not reflect the reality of modern day living in metro cities where the rentals have sky-rocketed but the tax exemption has remain stagnated for quite some time.
To meet the target of "housing to all by 2022", the government will lay a solid foundation by introducing faster approvals for the housing projects through a single window clearance. Not only will this substantially reduce the burden on developers, but also, the buyers will benefit immensely in form of on-time delivery and rationalization in property prices. Multiplicity of taxes on the sector is another dampner. Service tax, VAT and other such taxes only go to increase the cost of the houses whereas in the real sense of the term such indirect taxes should not be applicable on residential houses.
To promote affordable housing, the government has raised the limit of such properties, which is a welcome step, but it needs to be increased further in view of prevailing land cost and spiraling development cost. Practically, a property worth upto Rs. 90 lakhs or a unit upto a size of 1,200 sqft built up/carpet area in Delhi NCR and other big metro cities should be categorised under affordable category.
This will reduce the burden of EMIs on buyers as they will benefit from reduced interest rates, also people will be able to buy comfortable homes, rather than squeezing themselves in nests. Riding high on expectations, the government has a task cut out for its first full budget and both buyers and developers are eagerly awaiting respite in gloomy scenario. Positive sentiments alone won't suffice to make "housing for all" a reality, but for that, the government will have to announce innovative and drastic decisions both to encourage customers to buy homes and to inspire developers to be a part of the dream.
Mr Manish Agarwal, MD, Satya Group and Secretary, CREDAI, NCR