Real Estate

Housing Needs Policies To Bolster Demand In 2021

As the government is aware, developers' liquidity woes need to alleviate to forestall further market mayhem

Housing Needs Policies To Bolster Demand In 2021
info_icon

Have the government and RBI done enough to bail out the economy - and, by implication real estate? After all, the realty industry remains one of the most accurate bellwethers of the state of India's economy. While the country is rolling out its vaccination drive, Union Budget 2021-22 presents several opportunities to give the sector a shot in the arm, too. Given that real estate contributes more than 8 per cent to the Indian economy, it has justifiable expectations.

Multiple measures were announced in 2020 to beat the unprecedented impact of COVID-19 on the economy and the real estate industry:

Advertisement

- RBI's massive repo rate cut of 140 bps leading to the lowest home loan interest rates in over 15 years

- A six-month moratorium on EMIs

- Restructuring of loans of real estate companies at the project level

- At a state level, stamp duty reductions in Maharashtra

- A liquidity boost to the National Housing Board, and

- The first real-time deployment of rescue capital from the SWAMIH fund

These measures were proactive and commendable - but not surprisingly, given the depth of pain in the real estate sector, they were not enough. The housing industry needs measures to bolster demand in 2021 further. This year, demands go beyond the usual suspects of single-window clearance and industry status.

Advertisement

Affordable housing is very likely to get another booster shot. However, the budget also needs to focus on the larger market. More than ever, homebuyers and investors need focused tax incentives to get mobilized. As the government is aware, developers' liquidity woes need to alleviate to forestall further market mayhem.

Demands:

  • The Rs 2 lakh tax rebate on housing loan interest rates under Section 24 of the Income Tax Act needs to be hiked to at least Rs 5 lakh. It is expected to generate healthier housing demand, most notably in affordable and mid-segment housing.

  • Personal tax relief, either by tax rate reductions or amended tax slabs is necessary. The last increase in the deduction limit under Section 80C (to INR 1.5 lakh a year) was in 2014. An upward revision is long overdue.

  • GST waiver for under-construction homes is the need of the hour. The present GST rate on under-construction properties is 5 per cent minus the Input Tax Credit benefit for premium homes (>Rs 45 lakh) and 1 per cent for affordable homes (<Rs 45 lakh). Even a limited period waiver of GST will reduce overall property cost and push demand for under-construction dwellings. These have been slacking presently. Funds from buyers can aid developers towards project construction and thus lessen their dependence on financial institutions. The most-recent limited-period stamp duty cut in Maharashtra significantly boosted demand.

  • More incentives for private sector investments in affordable housing is a must. Despite the benefit of infrastructure status for this critically important segment, developers cannot get funding from banks and NBFCs at affordable rates. Profit margins for affordable housing projects continue to be extremely low.

  • Ease liquidity - The liquidity crunch had a cascading impact across sectors, including real estate. Project delays - the most significant fallout of the cash crunch – had severely dampened buyer sentiments in the last two years. Developers need a rational capital flow to keep up the supply pipeline healthy, especially for ready-to-move-in homes in demand. Increased supply also helps to keep property prices range-bound.

The author is the Chairman of ANAROCK Property Consultants

Advertisement

Advertisement

Advertisement

Advertisement