Budget 2022 should infuse fresh life in real estate sector

By Dr Niranjan Hiranandani,

According to RBI data, real estate assets comprise a significant slice of household wealth spread. Covid-19 pandemic has underpinned the innate demand for housing across all customer segments pan India. The new trends like remote & hybrid work model, reverse migration, rapid urbanisation, decentralisation of commercial hubs, new linkages with infrastructure projects in the pipeline will define new wireframes for real estate sector’s modus operandi.

Real estate demand and supply index is linked with economic cycles, government policies, regulatory framework, tax incentives, and exemptions to stimulate or hinder demand. The annual budget is the most watched event by the citizens and industry players to assess and align their way forward planning. After system reboot, the property market regime is aligned with regulatory framework, financial discipline, and compliance mechanisms. The industry is currently battling with challenges like shortage of skilled labour, supply chain disruption, skyrocketing prices of raw materials, stalled projects. From the time of squeezed margins to project viability, the situation is further grimed. Thus, Budget 2022 is not just about strengthening the existing financial systems, but also rationalisation of tax, impetus to demand & supply and fostering an investment climate to augment its value proposition for the homebuyers, developers, and investors community.

Budget wishlist 2022
Expand affordable housing benefits: Career mobility and rapid urbanisation trends will fuel the demand from the first-time millennial homebuyers. Considering the current market dynamics, extending the price cap from 45 lacs to1 crore in metro cities. Also, the financial beneficial scheme for affordable housing can be extended to the mid segment encouraging more developers to foray in this segment which will enable to encompass more homebuyers under the purview of affordable housing beneficiaries. Additionally, section 80IBA (2) (a) which deals with affordable housing, should be amended to provide benefits to all the projects registered with Rera between 1st June 2016 till 31st March 2023.

Tax rationalization: Reduce the individual tax similar to corporate tax rate at 25% for enhanced disposable income to raise consumption expenditure, the current benefit of 15% corporate tax rate under section 115BAA, should be extended to all infrastructure and new housing project which contributes substantially to GDP growth under any business formats like LLP or Proprietary entities and interest deduction on housing loans should be either fully exempted under income tax deduction or raise the ceiling from 2 lacs to5lacs as nearly 80% of the homebuyers buys home with mortgages loan. Also, long term capital gains from the sale of house property should be taxed at a reduced rate of 10% and the period of holding should be reduced to 12 months from existing 24 -36 months. These reforms will enhance investment attractiveness and fuel growth.

Rental housing reforms: Affordable rental housing can help achieve housing for all targets by creating housing stock surplus. In order to achieve that relaxation like enhancing HRA tax exemption, permit rental income to be made fully tax deductible and, real estate companies should be exempted from the burden of tax on notional income from house property held as stock in trade. Alternatively, no rent should be taxed for the period up to five years from the end of the financial year in which the completion certificate of construction of the property is obtained. Industry demands increase in standard deduction to widen from 30% to 50% along with accelerated depreciation rate in commercial real estate to spur development of rental housing needs of customers.

Liquidity step up: In order to resurrect stalled projects, much lauded initiative of setting up a stress fund like SWAMIH was remarkable. However, the amount allocated is insufficient to revive major projects and hence by enhancing the quantum of stress funds up to `1,25,000 crores will be effective. This will reduce overhang of unsold stock and deliver homes to long starving homebuyers. Another measure includes permitting entities to raise finances via external commercial borrowings in the real estate sector to open up alternative low-cost funding avenues and bridge the funding gap. Industry expects a lifting up ban on subvention schemes as it didn’t favour homebuyers. A large portion of them do not have capacity to manage dual financial outlay in form of house rent and EMI on home loan.

Price rationalisation: In order to eliminate the dual taxation burden, deemed tax on difference in sale price and market price in excess of 25% should only be treated as the income of either developer or seller.

Shelter is the basic need of human beings and the augmentation of long-term valuation of the real estate sector is imperative by attracting premiums and rents, enabling low-cost financing, increasing efficiencies, and mitigating risk of non- viability. Industry is closely watching tax policy and ease of doing business measures in the budget outlook that will make real estate a very buoyant asset class.

The author is vice chairman, Naredco & MD, Hiranandani Group
(Views express are personal)