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Budget 2023: Enabling policy measures can boost India’s real estate market

Budget 2023: Enabling policy measures can boost India’s real estate market

The sector is pinning its hopes on the upcoming Budget, and we are optimistic that a combination of enabling government policy measures and positive buyer sentiment will fuel the demand for real estate.

The real estate sector has remained on the growth path, a trend that is likely to continue in 2023 as well. The real estate sector has remained on the growth path, a trend that is likely to continue in 2023 as well.

The real estate sector has been one of the most substantial contributors to India's GDP growth and is expected to contribute ~13 per cent to the country's GDP over the next three years. The real estate sector has remained on the growth path, a trend that is likely to continue in 2023 as well. The sustained return to office across all sectors is expected to help the office sector retain its growth beacon tag. Meanwhile, amid the receding pandemic, consumers are now returning to physical retail stores, causing most brands to draw up physical store strategies.  

The residential sector has seen record sales and launch activity in 2022 as the market turned end-user-driven. We expect this trend to sustain in the coming year, and homebuyer sentiments are expected to remain positive as we near the end of RBI's monetary tightening cycle, taking dipping inflation into account.    

Nevertheless, we expect to see the impact of global headwinds, such as economic uncertainty and inflation, on the real estate decisions of occupiers that will have relative implications for the short term in India.    

The sector is pinning its hopes on the upcoming Budget, and we are optimistic that a combination of enabling government policy measures and positive buyer sentiment will fuel the demand for real estate.    

Recommendations for the Union Budget 2023-24:   

The limit of principal deduction on housing loans under Section 80C of the Income Tax Act (IT Act) 1961 stands at RS 1.5 lakh per annum. It is recommended that this be increased to at least Rs 4 lakh per annum. This tax deduction can also be entirely moved out of section 80C since it gets clubbed with other instruments such as LIC, PPF, etc.     

The interest deduction limit under Section 24 of the IT Act on housing loan stands at Rs 2 lakh per annum, respectively, to incentivize homebuyers. We recommend that the limit of Rs 2 lakh per annum be increased to at least Rs 4 lakh per annum. 

Currently, notional rent on a second completed, non-self-occupied / let-out property is taxable. Homebuyers can save up to Rs 2 lakh in taxation by offsetting their home loan interest against this notional rent. It is recommended that this tax be removed, or the RS 2 lakh limit be raised to drive capital toward the residential sector.   

Long-term capital gains from the sale of house property are presently taxed at 20 per cent through a special provision like Section 112 for equity shares. In addition, the period of holding of house property is currently 24 months to qualify as a Long-term Capital Asset (Section 54 of IT Act 1961). It is recommended that the tax rate be reduced from 20 per cent and the holding period for a property be reduced from 24 months to 12 months so that there is no capital gains tax liability for the same. In addition, the cap of Rs 2 crores on capital gains for reinvesting in two properties should also be removed.    

While the SWAMIH fund recently got a capital infusion of Rs 5,000 crore. The expectation in the budget is that it increases its overall size to Rs 50,000 crore. As post-COVID-19, last-mile funding to stressed housing projects has become imperative to boost residential activity and consumer sentiments.   

The External Commercial Borrowing (ECB) framework, issued by the RBI under FED Master Direction No.5/2018-19, prohibits companies availing ECB from using the proceeds for construction or development of regular housing projects and there is ambiguity regarding their usage for acquisition of land for affordable housing projects. Therefore, to further enable growth in the real estate sector, it is recommended that these relaxations be provided under the ECB framework. 

Views are personal. The author is Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE 


 

Published on: Jan 25, 2023, 4:24 PM IST
Posted by: Tarab Zaidi, Jan 25, 2023, 4:16 PM IST