While there were some relaxations awarded by the government to real estate sector in Budget 2021, there are still concerns which need to be addressed in Union Budget 2022, considering that lockdown and restrictions have been again imposed in various states and there is looming uncertainty in the markets.
Until 2021, the real estate sector was one of the hardest hit sectors in the country due to adversities faced at the time of lockdown imposed during the pandemic. In the past year, the housing market has seen a steady recovery from the downfall caused due to the pandemic, with residential sector outperforming other sectors despite pandemic constraints. However, with the threat of new COVID variant Omicron, the recovery of real estate market may face a setback and experience a slowdown again. Given that the COVID situation remains volatile, the real estate sector is anticipating some relaxations and exemptions to be announced by the Union Budget 2022, to ease the burden the sector is facing and foreseeing. The expectation in the upcoming year is that effect of new variant is mitigated and adequately contained in a manner that the real estate sector revives and reach the pre-COVID levels. Market leaders hope that the Union Budget 2022 will aid and support this expectation and provide impetus and incentives to the developers to enable growth in the real estate sector.
While there were some relaxations awarded by the government to real estate sector in Union Budget of 2021, there are still concerns which need to be addressed in Union Budget of 2022, considering that lockdown and restrictions have been again imposed in various States and there is looming uncertainty in the markets.
At a time when the country is anticipating another threat due to the outbreak of the Omicron virus that is expected to reach its peak in February, the real estate sector looks forward to the much-needed reforms and incentives in the upcoming budget, especially as the sector is the primary contributor to economic growth. Certain expectations from the Union Budget of 2022, with respect to real estate sector can be summed up as:
A reduction in Goods and Services Tax (GST) on raw materials for construction industry such as cement, steel etc. This would indirectly benefit the real estate sector, as it would help in reducing input costs to developers and eventually reduce the overall cost of construction. Prices of raw materials in general are increasing and a reduction in rates of GST would give some relief to developers.
An increase in the interest deduction for homebuyers for tax rebate under section 24(B) of the Income Tax Act, 1961 in order to give relaxation to the homebuyers as well as boost overall home buying sentiment during onset of another wave in the country. The current ceiling being INR 2 lakhs as a limit of home loan interest deduction for tax rebate, if increased to INR 5 lakhs, will significantly benefit the real estate market by providing more liquidity to tax payers and accelerate the buying capacity of homebuyers.
A revision in the definition of affordable housing should be considered by the Government for this budget. The current ceiling value for affordable houses is capped at INR 45 lakhs. We hope that this limit be increased to INR 75 lakhs in non-metro cities and INR 1.50 crores in metro cities. Further, an alternate suggestion is to increase the size of such affordable houses from 60 sq. m. to 90 sq. m. in metro cities and from 90 sq. m. to 120 sq. m. in non-metro cities.
The Government may consider granting an extension to the Credit Linked Subsidy Scheme (CLSS) scheme under the Pradhan Mantri Awas Yojana (PMAY) for Middle Income Groups (MIG) until December 31, 2022. Realtors are expecting that this increase in timeline will help in utilizing the allocated funds under the scheme.
Further, some other expectation from the Union Budget of 2022 are lower long-term capital gains tax, introduction of a tax relaxation on rental housing would give much-needed boost to rental housing, incentives for private investment, a single window clearance mechanism. The market players and industry representatives have also given a suggestion to the Government to allow tax-neutral consolidation of businesses through mergers for stalled housing projects.
Some expectations of the stakeholders of the real estate sector that were not met in the previous Union Budget of 2021 and are expected to be addressed in the Union Budget of 2022, are:
1. Availability of input tax credit for developers would be a welcome change. While input tax credit is not allowed at the time of construction against the GST paid on rent and other income from the property upon completion, the industry demands for setting-off of GST paid on input materials during the construction phase. The industry currently sees the lack of input credit as a dual tax levy on asset owning commercial real estate developers that rely on leasing or rentals.
2. Being awarded the status of ‘infrastructure’ or ‘industry’ has been one of the long-standing demands of the real estate sector. Currently the same has been conferred only to affordable housing which allows it to avail benefits such as cheaper credit facilities from financial institutions, tax concessions and increased flow of foreign and private capital. It is recommended that giving the status of industry to real estate sector as whole including holiday homes will help developers to avail various similar benefits like raising funds at lower costs, being included in the priority lending list of banks. It will help in fundraising for projects from various schemes. Along with this, the status of infrastructure will bring a number of tax benefits for the sector and may also lead to an increase in overall demand.
It is important that the Government consider these suggestions and expectations of real estate industry in the upcoming Union Budget of 2022 and introduce appropriate reforms to accelerate much-needed growth in the realty market and to enable faster economic recovery.
This article was originally published in Live Mint on 27 January 2022 Written by: Mrinal Kumar, Partner. Click here for original article
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