Budget 2020 fails to meet expectations of real estate sector

There have been mixed reactions from the real estate segment to the Union budget. It appears that the sector, by and large, has not been very happy with the budget as it felt that the estate sector could have been given an increased thrust.

Experts have pointed out that the budget misses on the ‘quick fixes’ the sector needs, and focuses more on a long-term vision. Some felt that the budget had very few measures for the real estate sector, which is one of the major contributors of India’s GDP. Apart from the personal income tax relief and few sops for affordable homes, there have been pressing concerns in the real sector that have not been addressed by this budget. There is no doubt that affordable housing continues to be the government’s focal point for real estate. The previous tax exemptions for both home buyers and developers have been extended for another one year.

“Personal tax relief across various income slabs will invariably increase disposable income at the hands of the middle class, and boost their consumption capabilities. This benefit, however, may not percolate down to the housing sector as significantly as hoped for. The budget, though, has given alternative segments a boost rather than giving direct benefits to residential real estate as a whole. The finance minister laid more focus on warehousing, data centres, schools, hospitals and hospitality. Besides, plans to build data centre parks across the country will boost demand for more real estate spaces. Simultaneously, plans to develop five archaeological sites will open new avenues for employment, and also indirectly push real estate development. Besides this, infrastructure development remained on top of the government’s agenda for propelling economic growth. Undoubtedly, infrastructure development has a major multiplier effect on not just the overall economy, but on the real estate market as well,” pointed out Anuj Puri, chairman, ANAROCK Property Consultants.

However, Puri feels that besides the affordable housing push and personal tax relief, no major benefits came in for resolving the current housing mess. “A hike in the Rs 2 lakh tax rebate on housing loan interest rates under Section 24 of the Income Tax Act could have kick-started healthier demand for housing, especially in the affordable and mid segment categories. But there was no announcement in this regard. The budget also missed any major announcement for easing liquidity in the real estate sector which is a major worry for most developers....Cash crunch had severely dampened buyer sentiments and there was a dire need to address this concern immediately. Additionally, the budget also did not announce any measures pertaining to implementation of land reforms. The lower 15 per cent tax rate for companies looking to set up new factories can be applied only if they can acquire land easily. Further, bringing greater transparency to India’s outdated land records system would have helped attract more foreign investors and limber up the approval procedure for real estate projects,” added Puri.

Some developers also felt that the man issues concerning the real estate segment have not been addressed properly. “Besides the personal income tax relief and few sops for affordable homes, there have been pressing concerns in the real sector that have not been addressed. There was an urgent need to address the challenge of liquidity faced by the sector, especially after the NBFC crisis. The budget could also have revived the Input Tax Credit for housing sector to provide relief to developers and home buyers, wherein homes could have been made available at lower cost. Some of the other aspects that the government could have addressed in the budget is granting of industry status to the overall real estate sector and implementation of single window clearance. A key expectation was the restoration of income tax benefit on a second home which would have benefited home buyers in a big way and also stimulated the real estate sector,” pointed out Lincoln Bennet Rodrigues, founder and chairman, Bennet and Bernard Group, a Goa based real estate developer.

Many other developers with whom THE WEEK spoke felt that a lot more could have been done for the ailing real estate segment. “We had certain expectations from the government from this budget which have not been fulfilled. This includes our demand for an industry status, single window clearance and reinstatement of Input Tax Credit in GST. There was significant expectation to cut GST rates to a single, standard rate, and not have multiple rates or taxes. It seems the entire focus of the government was on the latter while undermining the importance of real estate to the economy,” remarked Surendra Hiranandani, chairman and managing director, House of Hiranandani.

Some developers, who have a strong focus on the affordable housing segment, welcomed the push towards the affordable housing segment. “The budget 2020 brings good news for growing Indian middle class. The IT slabs in the new regime has a potential for putting extra money in the pockets of everyday Indians, which invariably boosts overall consumption. The Rs 1.5 lakh deduction in affordable home loan interest extended by another year will also bring people closer to their dream of becoming home owners. The tax soaps for affordable housing have also been extended by one year to March 31, 2021. The increase of the limit from 5 per cent to 10 per cent in the calculation of income ( i.e. difference between the consideration value and circle rates) while investing of capital gains and business profits in real estate, may see an increase in investors in real estate,” said Ashish R. Puravankara, managing director, Puravankara Limited.

Similarly, some experts opined that the tax holiday proposed to be given to developers would be surely a big boon for many of the stressed out real estate companies. “The tax holiday will bring in some relief and will help many real estate players to continue to be in business and complete their projects, thus doing justice to their buyers as they will have more money in hand. The deduction on housing loans being increased by one year will definitely encourage buyers in this segment as most of the buyers in affordable segment are first home buyers,” said Raja Mukherjee, CMO, Sowparnika.

A few experts also felt that the tax holiday to the developers has been extended by one year and can help bring in some relief to the sector. “In a bid to reduce complexities in real estate transactions and bring relief to the sector, the budget proposed to increase the circle rate limit of 5 per cent to 10 per cent. While the budget evokes mixed reactions, what would be interesting is to see how these reforms and ideas will be implemented,” remarked Shrinvas Rao, CEO-APAC, Vestian Global Workplace Solutions.