Union Budget 2022: Are there any long-term benefits for home buyers and developers?

[ecis2016.org] While the immediate demands of home buyers and the industry were largely ignored in Budget 2022, we gauge the markets’ reaction to understand if there are any long-term positives

When it comes to the Indian real estate business, there is no ideal predictive model that could assess the sentiments of both, the developers, as well as the buyers. The leading voices of the sector have never been very consistent with their budget wish-list and the post-budget opinions. The most important stakeholders, the home buyers, are more often than not completely ignored, when it comes to assessing sentiments after any Union Budget. The Union Budget 2022-23 has not even touched upon the pressing issues and demands of the real estate developers and the home buyers. Nevertheless, there is a silver lining, with some hailing the budget as a pro-growth budget.

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Concern areas for real estate in 2022

Some of the announcements in Budget 2022 that affect real estate, have been the government’s focus on the creation of 80 lakh affordable housing units by 2023 and the allocation of Rs 48,000 crores towards the PM Awas Yojana (PMAY). Gati Shakti Cargo Terminals could similarly be seen as fuelling demand for logistics and warehousing. That said, there is nothing that could immediately help the real estate sector, a business that is touted to be an engine of economic growth, and helps support 250 ancillary businesses and creates jobs.

Let us first look at the demands and concerns of the real estate sector, vis-à-vis Budget 2022-23:

• Raising the income tax exemption limit from Rs 2 lakhs to Rs 5 lakhs
• Income tax relief on second homes
• GST reforms to fuel under-construction houses
• Loan deferment or restructuring in the wake of job losses
• Redefining the limit of affordable housing
• Funding gap and project financing issues to be addressed
• Tax benefits on REIT investment
• Rental housing policy
• Tangible benefit to affordable housing developers
• Addressing compliance issues

Real estate indices’ reaction to Budget 2022

These pressing issues were not touched upon and hence, all eyes were on the stock market to see whether the Realty Index outperforms or underperforms after the Budget. The Realty Index that opened on a positive note ahead of the Budget speech later remained flat. The Budget announcements could not cheer up the Realty Index on a day when the BSE Sensex added 848.40 points (up 1.46%) and the Nifty 50 added 237.0 points (up 1.37%).

In contrast, the Nifty Realty Index that opened at 486.15 closed the day at 488.65 points. Similarly, the BSE Realty Index that opened at 3853.19 points closed at 3877.85 points.

Of course, the leading stocks in the sector that are beneficiaries of the K-shaped recovery, gained marginally, with DLF being the biggest gainer with Rs 16.60 (4.25%) and Prestige falling by Rs 2.0 (-0.41%). None of the realty stocks could drive the stock market, as expected.

[ecis2016.org] Budget 2022: Real estate industry left wanting more

Budget 2022: A missed opportunity for real estate growth?

Amit Goyal, CEO, India Sotheby’s International Realty, offers a guarded response when he says that the Union Budget has laid out a long-term path for growth and investment with an enhanced total expenditure at Rs 39.45 trillion and yet managing to curtail fiscal deficit to 6.4% in FY23 (from 6.9% in FY22). Although the budget has allocated Rs 48,000 crores to housing projects under the PM housing scheme, no big reforms or incentives were announced for the real estate sector.

“It is a missed opportunity for the real estate sector as incentives in the form of higher deductions against home loans, changes in incongruities related to real estate transfer and others, could have improved the market and triggered demand and sales in the real estate sector. Real estate, which is a major contributor to India’s GDP needs more focus from the government,” says Goyal.

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Ramani Sastri, chairman and MD, Sterling Developers, agrees that real estate stakeholders were expecting a number of demand-side stimuli for the sector and some significant opportunities were missed. However, the push to infrastructure spending and sops for affordable housing have kept the sector hopeful of positive changes. While affordable housing remains a priority for the government with a few additional reforms, the centre could have given a boost to real estate as a whole which fuels the Indian economy and supports over 250 allied industries.

“There is a huge opportunity in real estate that would enable faster economic recovery. However, it requires careful support from the government, in order to sustain the recently-achieved growth momentum. There are many grey areas, in terms of schemes, funding, taxation, etc., where the government can provide a helping hand going forward. It is imperative for the government to pay special attention to the real estate sector and have provisions for its well-being in the near future,” says Sastri.

Government incentives that could boost home buying

Says Vaibhav Jatia, managing director, Rhythm ResiTel, “While the government’s focus remained towards promoting affordable housing, mid and high-income housing continues to be adversely impacted by high levels of taxation, both, direct and indirect. Effective 12% GST payable by the end-user buyer towards purchase of a new house dampens the sale velocity of projects. In no other country, whether developed or developing, is the level of taxation this high for property transactions. When we add to this the additional stamp duty of 5%-6% payable to state governments, as well as other high premiums payable for development in cities such as Mumbai and the NCR, the government in effect and indirectly ends up becoming a significant economic partner in the project (33% -40%) with no investment/consideration. If we want to make homes affordable for the public at large (not just for lower income families), this is where the solution lies. Given that a real estate purchase is a high ticket item for any middle income family, we hope that GST levels are rationalised in future.”

Rajan Bandelkar, president, NAREDCO, points out that the sector was expecting more in terms of incentives to boost sales and to fulfil the dream of Housing for All by 2022. According to him, while the government’s focus remains on affordable housing, the industry was hopeful of incentives under sections 24(b) and 80IA 2 (a) and (b) and on bringing Capital Gain Tax at par with equities.

“Establishment of a logistics network in the country will provide an impetus to the development of infrastructure in the country. Easing land and construction-related approvals will help the development firms in meeting the delivery timelines. The establishment of a high-level committee on the urban sector to drive modernisation of building bye laws, TDR reforms, transit-oriented reforms and sustainable development, including single-window green clearances, will help the sector in the longer run. Moreover, increment of tax deduction limit to 14% from 10% on employers’ contribution to the NPS account of state government employees will strengthen the hands of those aspiring to buy homes,” adds Bandelkar.

Conclusion

In a nutshell, disappointment apart, the real estate stakeholders have taken the Union Budget 2022-23 as well within the tolerance zone. Is it equally within the tolerance zone of the home buyers? It is a question that could only be addressed in the medium to long term. While there are some long-term hopes with the budget announcements, the short-term pains of the sector and the home buyers is something that Budget 2022 did not address.

(The writer is CEO, Track2Realty)

Budget 2018: Very few positives for real estate

Lack of any meaningful income tax reduction for the salaried class with the Income Tax reduction and, added to it, the announcement of Capital Gains Tax dashed the expectations of the urban middle-class who are a major demand driver

February 1, 2018: Home seekers across the major housing markets of India, were hoping for some announcement in Budget 2018 that would make it easier to buy their dream homes. Before the budget they had hoped for some reduction in income tax limits, lower rate of interest on home loans, reduction of GST and stamp duty and increase in the cap on interest and principal deductions. However, at the end of the one hour and 50 minutes speech by finance minister Arun Jaitley, many are disappointed.

Buyers opine that the sudden shift towards the rural and farm sector, in the last full budget presented by this government, indicates that this was election-oriented budget. The finance minister even announced a capital gains tax on equities. The stock markets, which rose ahead of the budget speech, too ended the day marginally lower.

Home buyers left dissatisfied

“We have weathered hard measures like demonetisation and GST, with the expectations that the government would encourage honest tax payers, in return,” says Swaraj Sehgal, an IT professional in Gurgaon. However, it seems that this government is no different from the tried and tested approach in Indian politics, where sops are announced for voters on the eve of elections, he laments. “Was it a budget speech or election speech?” questions Namrata Chauhan in Mumbai.

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“Forget about incentivising the tax payers with a home purchase that has a chain effect on the economy at a macro level; this budget has completely ignored the basic needs of middle-class Indians across the major cities of India. When the government itself has revised its job creation target from two crore to 70 lakhs now, it is very obvious that home buying capacity of Indians will take a hit,” explains Chauhan, a real estate consultant.

[ecis2016.org] Budget 2018: Proposed income tax changes, for transfer of real estate

Budget 2018 has a few positives, say developers

While developers too may be disappointed, they are not overly critical.

Ravindra Pai, MD of Century Real Estate, agrees that there were a lot of expectations from the finance minister in this budget, for real estate. “Unfortunately, other than some minor mention about a fund for affordable housing and increased allocation for ‘Smart Cities’, there is not really anything for real estate or home buyers,” he says.

Nikhil Hawelia, managing director of the Hawelia Group maintains that although there are certain positives, there are more disappointments with this budget. “The capital gains tax in the equity market, might bring the well-to-do middle class back to the housing market. Ever since the slowdown in real estate, the capital market has been the biggest beneficiary. However, I feel a reversal is possible now. Other than that, I do not find very many positives in this budget,” he explains.

Greater clarity needed on certain announcements

The finance minister has proposed that the government will set up a dedicated affordable housing fund in National Housing Bank. However, there is lack of clarity on the actual investments and expected impact. The same could be said about another promise of one crore houses to be built under the Pradhan Mantri Aawas Yojana (PMAY), in rural areas.

“There is too much talk about a ‘digital economy’. My point is, will we migrant professionals live in the digital space or in a house? In a city like Bengaluru, it really pinches to pay exorbitant rent but there is no incentive, even though the finance minister in his budget speech acknowledges the fact that our contribution with income tax is more than that of self-employed entrepreneurs. We are forced to pay taxes without any encouragement,” says Sudhakar Reddy, a finance professional.

Even women home buyers feel that the announcement to amend the Employees PF Act, to reduce the contribution of women to eight per cent from 12 per cent, with no change in the employer’s contribution, would hardly make any impact, as far as their purchase power is concerned.

“What I was looking for, as a woman, was some direct relief in creating an asset class like a house. Does the government even understand the financial security aspect of women, when offering symbolic reliefs? Similar is the case with relief to salaried taxpayers that proposes to allow standard deduction of Rs 40,000 in lieu of transport allowance and medical reimbursement,” points out Kavita Jain in Delhi.

In the first Union Budget after the implementation of GST, the middle-class was expecting a lot more, in terms of its dream of buying a house. It now, seems that they will have to wait some more.

Budget 2018’s mishits

• There was no incentive for home buyers in Budget 2018, even though the finance minister acknowledged the contribution of the salaried class.
• While the budget proposed more spending to the tune of Rs 3.5 lakh crores, clarity over fiscal consolidation remains elusive.
• Focus on job creation down from two crore jobs to 70 lakh jobs now.
• Home buyers, who were expecting some sops in the first budget after GST implementation, have been left disappointed.

(The writer is CEO, Track2Realty)

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