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Budget 2023: Realty bats for hiking home loan exemption limits

The residential market is yet to reach previous highs

realty bhanu Representational image | Bhanu Prakash Chandra

Middle-class India for once will wholeheartedly applaud if the finance minister agrees to the one big demand (or should we add, one big, long-pending demand!) of the real estate segment—an increase in tax deduction limits on home loans.

Of course, the country’s realty sector is still not out of the woods, yet. For all the talk about the pandemic having made people realise the importance of owning one’s own home and spacious ones at that, the residential market is yet to reach previous highs. While the office market has rebounded and luxury housing gets a leg up, the larger, middle-class-oriented affordable housing has lagged behind.

Now, the industry fears that the recent interest rate hikes, which makes a home loan more expensive, will prove to be a further whammy that will set it back.

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“Despite the rise in interest rates on home loans, housing sales have remained strong (only) because of pent-up demand from the years impacted by Covid-19. To sustain this demand, the real estate sector needs some fiscal support in the upcoming budget,” says Dhruv Agarwala, group CEO of Housing.com, PropTiger.com & Makaan.com.

While multiple players have multiple demands, all opinions converge when it comes to increasing the limits in tax deduction. Ramesh Nair, CEO (India) of Colliers, explains: “The limit in the tax deduction on interest paid should be increased from the current 2 lakh rupees to about 3-4 lakh in case of self-occupied property. A hike in interest deduction will encourage the homebuyers to invest in the real estate and increase the demand in the market.”

Others agree. “An increase in tax exemption on interest paid on home loans, exemption on rental incomes, uniformity and expansion in the definition of affordable housing would help boost housing absorption,” says Avneesh Sood, director of Eros Group, a real estate firm.

With the buzz around a raising of income tax slab limits is strong this time around, realty majors feel increasing the limits of principal as well as interest part of home loans eligible for tax exemption could go a long way in offsetting the impact of interest hikes, and any possible inflationary and recessionary developments in the coming months.

The industry has also called for the tax holiday for affordable housing to continue. "100 per cent tax holiday for affordable housing projects under Section 80IBA (should be) extended (beyond) 31 March 2022,” adds Nair. “This can provide a boost to rental housing in the affordable segment. 100 per cent exemption for rental income up to 3 lakh rupees for houses costing up to 50 lakh (and) can directly incentivise owners to rent out their houses to the targeted segment.”

There are supply side issues, too, especially with the rise in cost of raw materials. “The rise in the cost of raw materials has been impeding the growth momentum. Reducing the GST rate on raw materials will help in reducing the price of property and help cater to the demand of the market,” says Amar Sarin, MD and CEO of the realty firm TARC.

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