Budget 2020 Expectations: Budget is one of the key events that the industry looks up to, as it not only provides major announcements, but also reflects the intent of the government with regards to economy. The upcoming budget comes in a backdrop of one of the most challenging times in over a decade. With sagging consumption, stress in the banking sector as well as the NBFCs coupled with recent inflation numbers showing a sharp rise in December to a 5-year high, the current budgetary provisions and announcement are something that the entire economy would be looking forward to.
Real estate being one of the major contributors to the GDP and a major job creator would be one of the focus areas in Budget considerations, especially in the wake of slowdown in the sector. The sector is in dire need of measures aimed at addressing (a) liquidity crunch (b) boosting demand and (c) creation of enabling environment.
"One of the key challenges in the sector, more specifically for residential segment, has been limited sources of funds for developers. The situation has been further compounded over the last one year, especially owing to drying up of funding from the NBFCs. While the announcement of the Rs 25,000-crore Alternative Investment Fund (AIF) targeted towards funding projects stuck at last stage of construction is one step in the right direction, the sector would need more on this front," says Ashutosh Kashyap, Associate Director, Valuation & Advisory Services at Colliers International India.
In addition to the faster deployment from this AIF, a budgetary provision for a follow up fund would be desired. While the AIF is targeted to address the last-mile funding issue, the Budget 2020 should also find ways to channelize lending through public sector banks for profiled low risk developers & projects in order to fund projects at initial stages as well.
"In order to boost the demand side issue, the Budget should focus on incentivisation that leaves more money in hands of buyers (end-users). It should consider increase in the income tax rebate on account of interest payment from the existing Rs 2 lakh to Rs 3 lakh. This will not only induce purchase from those sitting on the fence, but also result in more disposable income in the hands of consumers. For any purchase of house costing Rs 50 lakh and corresponding home loan of Rs 40 lakh, the interest paid in the first five years is well beyond Rs 3 lakh per annum. In most cases, the rebate in its present form and quantum is inadequate," says Kashyap.
An additional rebate on account of principal repayment shall also be considered over and above the rebate provisions of Section 80C, which at present is part of the composite bucket of eligible rebate of Rs 1.5 lakh under Section 80C of the Income Tax Act.
"The third key issue that needs to be addressed is the creation of enabling environment for more housing purchases, which can be achieved in many ways. One of the key methods to boost housing purchase is improvement in urban infrastructure to provide seamless and faster connectivity to more peripheral and affordable areas, bringing it within 30-45 minutes of commute time of major employment hubs. Infrastructure spending in the form of building expressways, dedicated elevated roads to connect peripheral areas, metro rails, and others such as pod taxis etc. An improved and better connectivity entices purchases in such affordable areas and can help rejuvenate the demand for projects in such areas," says Kashyap.
Realty experts say that the government, during the last 6 months, has taken several measures to boost the economy, some of which were particularly aimed at reviving the moribund real estate sector. Most of these measures are likely to bear fruit in the medium to long term.
"Immediately, the biggest challenges confronting the real estate sector are liquidity and demand. While the Rs 25,000-crore stress fund/AIF that was announced earlier is likely to solve part of the liquidity crisis, there is an urgent need for a one-time loan restructuring for the sector. This would provide significant relief to developers and lead to faster completion of projects. We hope that the Hon'ble Finance Minister announces that measure in the upcoming budget. On the other hand, to push demand, the government should consider lowering the tax burden on individuals to put more money in the people's hands and also consider providing an additional tax deduction on purchase of a second house. This will help boost demand and lead to an overall growth in the GDP by driving up consumption," says Dhruv Agarwala, Group CEO, Elara technologies.
Manoj Gaur, MD, Gaurs Group, and Chairman, Affordable Housing Committee, CREDAI, says, "We hope that the government will take a call on single window clearance, which is long pending and is the best solution to expedite the development process. If not, then the permission granting authorities should be brought under the ambit of RERA. The Budget is expected to be in line with the goal of ‘Housing for All by 2022’. The government should give certain sops to the developers for affordable housing and attention should be paid towards Input Tax Credit (ITC). We all wish for re-introduction of input tax credit in GST, which has been withdrawn recently. With this benefit, property prices will remain under control."
Some developers say that the affordable housing sector has been given the infrastructure status, but the implementation has not been up to the mark.
"We hope that the announcements that were made last year regarding the investment towards infrastructure will get a clear picture for implementation. The Budget should also address the issue of making cheaper land available in main cities for the development of affordable housing. Besides, income tax benefits are also expected to increase which will help in more investment in real estate, which in turn will help the economy. We also expect the government to double the amount of fund allocation for Pradhan Mantri Awas Yojana. This will enable more people to realize the dream of owning a home and also help the government in achieving the goal of Housing for All by 2022," says Pradeep Aggarwal, Founder & Chairman, Signature Global and Chairman, National Council on Affordable Housing, ASSOCHAM.
"We are looking forward for the industry status to the real estate sector along with steps being taken in the direction of single window clearance under ease of doing business which will tremendously help the sector. Also, it will be helpful if GST is revised for construction materials such as cement to make them more affordable. Also, the income tax deduction under section 24 must increase up to Rs 4 lakh, and the government should ensure land availability for Affordable Housing. It should also be mandatory to have a time-bound approval system in the sector." says Gaurav Gupta, President, CREDAI Ghaziabad.
Rajat Goel, Joint MD, MRG World, says, "We expect that some more measures should be taken to help the affordable housing segment. The FM should come with policy changes that can make developers to come up with more projects in the segment, help people buy these homes, etc. An announcement for the affordable segment on the lines of policies being followed in Haryana can be replicated in other areas as well."
While the list of expectations could be a long one, there are a few that are easy to achieve while others could be directional in nature setting tone for long-term stabilized growth. The government, thus, needs to weigh options and adopt those that suit the macro parameters of the sector as well as the economy.