The real estate sector is looking to the India Union Budget 2020 with great expectations in a bid to get some relief from liquidity woes. Homebuyers, meanwhile, are also hoping for announcements that would ease their hardship. In 2017, real estate contributed to 6 to 7 percent to India's Gross Domestic Product (GDP). The sector is expected to contribute to around 13 percent to the country's GDP by 2025 and is seen becoming the third-largest globally at USD 1 trillion by 2030.
Below are some of the big expectations from the real estate sector from upcoming Budget. It is keen to see several sops being handed out by Finance Minister Nirmala Sitharaman to revive homebuyer interest in the sector. The following is the wish list.
Changes in Section 80C deductions: The principal repaid on a home loan is allowed as a tax deduction under Section 80C. Home-loan borrowers are expecting a relief to claim a higher deduction on the home-loan principal repayments. Moreover, the limit of tax deduction applicable on home-loan interest paid under Section 24 should increase. Currently, the limit is up to INR2 lakh, the realty sector expects the limit to be increased to INR2.5 lakh or INR3 lakh. This could result in healthier demand for housing, especially in the affordable and mid-segment categories.
Changes in Section 80EE deductions: tax deduction under Section 80EE of the Income-tax Act 1961, can be claimed by first-time home buyers for the amount they pay as interest on home loans. The maximum deduction that can be claimed under this section is INR50,000 during a financial year. The amount can be claimed over and beyond the deduction of Section 24 and Section 80C, which are INR 2,00,000 and INR 1,50,000, respectively. The expectation is that the value of the house on which the interest is paid should be increased from the current INR50 lakh to INR75 lakh or INR1 crore. The deduction under 80EE should subsequently be increased to INR1 lakh, which was previously allowed in FY 2013-14 to improve buyer sentiment.
- Input Tax Credit (ITC) benefit: include the ITC benefit in GST for under-construction homes; while the GST rate on under-construction properties was reduced to 5 per cent in 2019, the previous ITC benefit was abandoned. Already cash-starved developers cannot avail of the tax benefit on construction raw materials and the increased costs are passed on to buyers. Providing ITC benefits is a great incentive to reduce property prices and thus make under-construction homes attractive.
- Ease External Commercial Borrowing (ECB) norms: the realty sector is expecting the government to ease ECB norms to ensure steady inflow of capital from foreign investors.
- Rooting for industry status: the government is expected to confer industry status on the real-estate sector, a long-standing demand that was partially fulfilled when the affordable housing segment received industry status in 2018. This will enable developers to raise funds at lower rates and reduce their cost of capital, which will eventually have a bearing on overall project cost.
- Incentives to achieve housing for all by 2022: regulatory support by means of allowing HFCs to take deposit will ease the credit crunch and be a big step in attaining the goal of housing for all by 2022. Extending the sops under the Credit Linked Subsidy Scheme (CLSS) till the goal of housing for all is being achieved and have a relook at the definitions of the beneficiaries, considering the high cost of living in metropolitan areas, especially Mumbai, which accounts for 37 per cent of total affordable housing demand in the country, can be strong catalysts for increasing the demand.
- Immediate deployment of Alternative Investment Funds (AIF) regime: immediate deployment of the INR25,000 crore AIF regime is necessary. The government needs to act immediately, and the allotted funds need to be utilised to full potential without delay. Completion of stressed projects will improve home-buyer sentiment and boost demand. Further delays will result in a domino effect and add more stressed projects.
(A version of this article appeared in the Moneycontrol on Jan 23, 2020)