Real estate sector seeks GST waiver, focused tax incentives in Union Budget 2021
The government and the Reserve Bank of India (RBI), in their individual and collective capacities, have certainly gone the extra mile to resuscitate the Indian economy in these pandemic times. Real estate was both a direct and indirect beneficiary of their efforts.
The RBI rolled out significant reductions in the repo rate - by as much as 140 bps, resulting in the lowest home loan interest rates in the last 1.5 decades. A six-month moratorium was provided on equated monthly instalments (EMIs) on all loans, including home loans.
Loans to real estate firms were restructured at the project level, and the state of Maharashtra provided a time-bound - reduction in the stamp duty payable on homes. This had a huge impact on sales in MMR and Pune.
The National Housing Bank received a significant liquidity infusion, and the SWAMIH alternative investment fund began providing last-mile funding to stressed housing projects in the affordable and middle-income categories.
Nevertheless, the situation remains challenging. Can Union Budget 2021-22 add significantly to these existing efforts? We can almost certainly expect notable provisions being made for affordable housing, but demand needs to be boosted in the mid-range category of housing as well.
One of the obvious means to do so is via focused tax incentives. Increasing the existing Rs 2 lakh tax rebate on housing loan interest rates (Sec 24 - IT Act) to at least Rs 5 lakh would lead to a perceptible improvement in residential demand - especially in the affordable and mid-segment categories.
On the larger front of personal tax, there have been no tax rate reductions or changes in tax slabs (under Section 80C) since 2014.
Another urgent demand is the waiving of GST for under-construction properties. Currently, 5 percent GST is charged on under-construction homes minus the ITC benefit in the premium housing category (homes priced above Rs 45 lakh) and 1 percent on affordable housing (priced under Rs 45 lakh).
Similar to the temporary stamp duty waiver which made a big difference in Maharashtra, a time-bound waiver of GST on under-construction properties would help lower the cost of acquisition on under-construction homes and thereby boost demand.
Capital raised via sales helps developers meet their construction costs and reduces the need to court lending institutions.
The Union Budget should also increase incentives for private sector investments in affordable housing. Though this segment now has infrastructure status, developers are not able to raise affordable funding from major banks and NBFCs. Also, measures are needed to improve liquidity in the real estate sector.
Project delays have seriously impacted buyer sentiments and developers need a reliable flow of capital to meet their project construction commitments.
Finally, there is a huge need to speed up infrastructure development. The government’s intention to spend Rs 100 lakh crore 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.
For YourStory's multimedia coverage of Budget 2021, visit YourStory's Budget 2021 page or budget.yourstory.com
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)