One of the sectors that took a tough beating amid the coronavirus pandemic is real estate. With businesses going on a long hiatus and offices moving to the bedroom, real estate was left alone to lick its wounds. There were no takers and no new homebuyers as financial resources had considerably depleted.
As such, prices of realty fell considerably. Even so, consumer confidence was in the doldrums and hence pre-sales had reduced significantly. This in turn led to liquidity issues with residential developers.
Real-estate remains a pain-point even as the economy staggers back to normalcy. But what can Finance Minister Nirmala Sitharaman do to rescue the real estate sector out of its misery?
The government could look at personal tax relief for homebuyers. The last increase in deduction limit under Section 80C was in 2014. An upward revision is perhaps long due.
"'Revival Push' is the key expectation from the Union Budget 2021. From an affordable housing perspective, corrective measures which ease out the liquidity challenges and improve home buying sentiments will be critical. Covid-19 has enforced changes such as - working from home, online education for the students, push towards touch-free consumer products - resulting in buyers looking for improved home buying options. This gives a much needed fillip to counter the gloom and doom home buying scenario especially in the Tier 1 and 2 markets. Relief for taxpayers/ reduced income tax rates will nurture the spur of demand in the housing sector this year. It will be beneficial to have a limited waiver on GST to aid the pricing burden on property owners. Additionally, the GST for sanitary ware and LED/smart lighting is marked at 18% and 12% respectively - a reduction will be conducive to improved demand and help with the adoption of better consumer habits to gratify the Government's Vocal for Local , Swasth India and affordable housing for all by 2022 goals," said Rajesh Mehra, Director at Jaguar Group.
GST waiver for under-construction homes could go a long way in enticing customers. The present GST rate for under-construction properties is 5 per cent without ITC benefit for premium homes priced over Rs 45 lakh and 1 per cent for affordable homes that are priced below Rs 45 lakh. Reducing or waiving of GST would mean that the overall property cost would be cheaper. This would also fund under-construction homes that will help developers to bank less on financial institutions.
Recently, Maharashtra announced a cut on stamp duty for a limited period. Long-term capital gains exemption could also be provided to homebuyers. Reduced stamp duty and no capital gains would be a great incentive and pump some life in the sector.
"To further propel the growth of commercial office real estate in the country, we expect government to look into some of the key concerns to boost the economy. Stamp duty needs to be reduced and while Maharashtra has taken the lead in this, implementation of the same by other states too would be welcome. GST incurred on construction of immovable property to be let out should be allowed as input credit against the GST on rent receivable. GST on TDR and joint development of commercial properties could also be looked into. We hope the budget would allocate more funds towards IT infra spends involving digitisation of land records in urban areas. The government should also promote proptech companies by providing Credit Guaranteed loans to build blockchain implementation of property records. Since the growth of start-ups is likely to have a positive bearing on commercial real estate, it is important for the Government to address the concerns of these prop tech and fractional investment start-ups too," said Rajesh Binner, Founder and CEO, YieldAsset Real Estate Tech Pvt Ltd.
Housing loan interest rates enjoy Rs 2 lakh tax rebate under Section 24 of the Income Tax Act. If this is increased, then it would create demand.
If the government announces incentives for private sector investments for affordable, it would go a long way in solving the sector's woes. Developers are unable to get major funding from banks and NBFCs at affordable cost. Profit margins for affordable homes continue to be low.