In three weeks from now, the Union Budget 2020-21 will be presented on 1 February 2020. There's a never ending wish list that is presented to the Finance Minister during the course of stakeholder interactions - from slashing tax rates and other consumption boosters to increasing credit off-take from banks to ease liquidity. The real estate sector which is battling stagnant sales is expecting developer and investor friendly measures from Budget 2020-21 and is particularly hoping for quick implementation of the alternative investment fund (AIF) regime to rescue stressed residential projects. According to Anuj Puri, chairman of Anarock Property Consultants, the immediate deployment of the Rs 25,000-crore AIF regime is necessary and that the allotted funds need to be utilised to full potential without delay. In fact realty firm Supertech has sought Rs 1,500 crore from the stress fund to complete its 12 ongoing housing projects, comprising 20,000 flats, at Noida and Greater Noida in Uttar Pradesh. It is expected that the completion of stressed projects will improve home-buyer sentiment and boost demand while any further delays will result in a domino effect and add more stressed projects.
The sector while expecting big doles from the FM wants Budget 2020 to announce industry status to the real estate sector as it will help in raising low-cost funds and make land acquisition simpler. This announcement, say industry veterans, besides bringing back growth in the sector will enable developers to cut capital costs and pass on the benefits to the consumers. For the uninitiated, affordable housing was already given the infrastructure status in the past and that in addition to other benefits was aimed at enabling developers avail tax concessions and get access to low-cost loans from banks apart from foreign and private capital. Even for the affordable segment the expectation is that the value limit of an affordable house must be enhanced from the current Rs 45 lakh to at least 60 lakh.
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A long pending wish-list of the sector has been a single-window clearance mechanism to help in quicker completion of projects. Surendra Hiranandani, CMD of House of Hiranandani stated to FE Online that elimination of taxes on vacant property, dropping circle rates section from Income Tax Act, increasing the limit of interest deduction paid on a home loan, ensuring tax rationalization on REITs and lowering costs of land acquisition would be some of the measures that will positively impact the sector. Rationalisation of stamp duty is yet another expectation of the sector. While the government has already unveiled National Infrastructure Pipeline, NIP, the sector expects measures to accelerate infrastructure development in tier II and tier III cities. The argument is that such measures will help provide affordable land parcels for budget housing development. Regulating cost of key raw materials - cement and steel - is yet another expectation from Budget 2020-21.
Anuj Puri, lists out a few justifiable expectations from Budget 2020:
Hike the Rs 2 lakh tax rebate on housing loan interest rates under Section 24 of the Income Tax Act - This could kick-start healthier demand for housing, especially in the affordable and mid-segment categories.
Personal tax relief, either by a cut in tax rates or favourably readjusted tax slabs - The last increase in the deduction limit under Section 80C (to Rs 1.5 lakh a year) was in 2014 and an upward revision is long overdue.
Include ITC benefit in GST for under-construction homes - While the GST rate on under construction properties was reduced to 5% in 2019, the previous ITC benefit was shelved. Already cash-starved developers cannot avail tax benefits for construction raw materials and the increased costs are passed on to buyers. Providing ITC benefits is a great incentive to reduce property prices and make under-construction homes attractive again.
Immediate deployment of Rs 25,000 crore AIF - The clock is ticking and the government needs to act immediately. The allotted stress funds need to be utilized to full potential without delay. Completion of stressed projects will improve homebuyer sentiment and boost demand. Any further delays will result in a domino effect and add more stressed projects.
Ease liquidity - The ongoing liquidity crunch has a cascading impact across sectors, including real estate. Project delays - the biggest fallout of the cash crunch – have severely dampened buyer sentiments. Easing liquidity will increase capital flow for developers and keep supply - most importantly of high demand ready-to-move-in homes - healthy. Increased supply also keeps prices in check.
Improve credit off-take from banks - The NBFC crisis has hit the sector hard, and there is enough justification to warrant credit off-take. Apart from recapitalization by the government and stringent measures by RBI, the gross NPAs of banks also improved to nearly 9.1% towards September-end 2019 (against 11.2% the preceding year).
More incentives for private sector investments in affordable housing - Despite the benefit of infrastructure status for this critically important segment, developers are unable to get funding from major banks and NBFCs at lower interest rates. The profit margins for affordable housing projects are unattractively low.
Speed up infrastructure development - The Government’s hard focus on infrastructure development is beyond dispute, but its plan to spend Rs 100 lakh crores on infrastructure over the next five years can only yield tangible economic results with speedier on-ground implementation. There is a dire need to iron out bottlenecks hampering infrastructure growth.
Implement land reforms - The new lower 15% tax rate for companies looking to set up new factories can be applied only if they are able to acquire land easily. Implementation of a unique identity numbers or UID for land will bring greater transparency to India’s outdated land records system and help attract more foreign investors and limber up the approval procedure for real estate projects.