The union budget for FY2019-20 turned out to be a mixed bag for realty sector, with buyers of affordable homes receiving an additional tax incentive, while builders were left out from receiving input tax credit (ITC) benefits under the goods and services tax (GST).
In her maiden budget Finance minister Nirmala Sitharaman on Friday, increased interest deduction on loan taken for an affordable home by Rs1.50 lakh. This means that the owner of a self-occupied house in the affordable segment, valued at up to Rs45 lakh can show interest deductions of Rs3.50 lakh instead of Rs2 lakh.
Ramesh Nair, chief executive (CEO) and the country head of JLL, says, “With an objective to help buyers in the affordable and mid-housing segments, an additional exemption of Rs1.5 lakh on interest paid on housing loan, over and above the existing Rs2 lakh, has been provided for properties up to Rs45 lakh. Considering that a majority of homebuyers fall in the lower and mid-income segments, this tax benefit will boost demand substantially.
This will significantly benefit first time homebuyers who will enjoy the benefits of interest subvention under the CLSS scheme and the announced tax benefits. With effective interest coming down, it will increase the eligibility for the mid-income housing segments, open up land parcels of government and PSUs to be utilised for affordable housing and public infrastructure”, according to Mr Nair.
Liases Foras, an independent non-broking real estate research company, believes that the move would rationalise housing cost for end user and stakeholder and that it will give an “immense boost to affordable housing in tier-II cities as well as to real estate in peripheral areas of tier-I cities”.
Our data shows affordable units (priced less than Rs45lakh) contribute 53% of the unsold supply and 53% of sales across 50 cities in India, says the firm.
There was emphasis on several government programs like the Prime Minister Awas Yojana (PMAY), Gramin, a program aimed toward affordable housing for the middle, and lower classes, with the objective of housing for all by 2022, as envisioned by Prime Minister Narendra Modi.
Ms Sitharaman also proposed to bring in a model tenancy law which may give a huge boost to rental property at a time when many youngsters prefer to lease rather than buy.
Commenting on this, Mr Nair from JLL says, “This (the model tenancy law) will be finalised and circulated to the states. Archaic rental laws in the country so far have proved disadvantageous for both, tenants and property owners. The new rental act will bring the required institutional framework in the country and make it more organised and fair for landlords and tenants.”
Non-banking financial companies (NBFCs) and housing finance companies (HFCs) play a crucial role in supporting the real estate sector.
Ms Sitharaman told the Lok Sabha while preseting her budget that housing sector needs efficient and conducive regulation and that National Housing Bank (NHB) plays a difficult and contracitory role of being both lender and regulator of the housing finance sector. "Efficient and conducive regulation of the housing sector is extremely important in our context. The NHB, besides being the refinancer and lender, is also regulator of the housing finance sector. This gives a somewhat conflicting and difficult mandate to NHB. I am proposing to return the regulation authority over the housing finance sector from NHB to Reerve Bank of India (RBI)," she said.
According to market players, unification of the regulatory body and to place both NBFCs and HFCs under the aegis of RBI will lead to better regulation of HFCs and improve transparency in the system.
The Budget has proposed a one-time provision for six month period to offer partial credit guarantee to public sector banks to buy high rated pooled assets worth Rs1 lakh crore from NBFCs. This will provide the much needed liquidity to the NBFCs. They can thus liquidate their portfolio and meet their liabilities in a timely manner. Additionally, it will induce an atmosphere of confidence.
While the budget had a lot for the housing sector, expectations were riding high and there was disappointment as well. Pointing to the flip side, Anuj Puri, chairman of Anarock Consultants Pvt Ltd. Says,
“From the real estate perspective, the budget did not meet many expectations as it failed to address the sector's most pressing concerns. We may not see consumers and investors return to the market in sufficient numbers - barring in affordable housing. The all-important ‘industry status’ remained elusive, taxes were not sufficiently moderated and land reforms were not mentioned at all,” he says.
To revive the ailing real estate sector and ease the liquidity crisis, the government has to revive investor sentiment. However, according to Mr Puri, the budget failed to announce sufficient key initiatives and measures to bring investors back to the real estate market and thereby help pump some badly needed liquidity into the system.
Pre-budget, there were strong indications that the Centre would create a stress-asset fund to get work started on the stuck projects and provide relief to cash-starved developers as well as aggrieved homebuyers. The fact that it did not materialize is a major disappointment, he says, adding increase in customs duty on various raw materials such as PVC, and vinyl floor may put additional pressure on the pricing of residential real estate.
ITC benefit in GST left out
Without ITC benefits, builders suffer a major cut in their profit margins, Mr Puri says. “Not only are the consequent losses offset by higher prices to buyers, but they also result in a curtailed supply pipeline which does not bode well for amenable pricing going forward,” he added.