The Union Budget for 2021-22 has been recently presented and it lays a heavy emphasis on ‘Atmanirbhar Bharat’. Health, education, women empowerment, infrastructure development and youth employment opportunities are some of the notable sectors that have received special attention. Though there were fewer announcements for the real estate sector, it received some significant ones such as tax deduction on home loan interest, affordable housing, debt financing for Real Estate Infrastructure Trusts (REIT) and Infrastructure Investment Trusts (InvIT). Though the current budget is favourable for the Indian real estate sector as a whole, experts say it’s a mixed bag. So what did the real estate sector gain in the Union Budget 2021-22?
The government has prioritised ‘Housing for All’ and affordable housing to boost the real estate sector. This budget has granted Rs 54,581 crores to the Ministry of Housing and Urban Affairs to realise this objective. They are also proposing to increase the safe harbour limit for primary sale of residential units from the existing 10% to 20%. This move is expected to encourage buyers as well as developers to revitalise the real estate market.
Stressed Asset Resolution would be made simpler. National Company Law Tribunal framework will be made more robust, e-Courts will hear cases, and alternate methods of debt resolution will be introduced. Public sector banks with high levels of provisioning for stressed assets will get help in cleaning up their books. An Asset Reconstruction Company and an Asset Management Company would consolidate and take over their stressed debt. It will reduce the burden on banks and facilitate them to reduce the interest rates on home loans.
It is all a part of the government’s drive for affordable housing.
The common man’s home buying aspirations have also received a boost in the budget. The government had announced an additional deduction of interest up to Rs 1.5 lakhs for a limited time in their July 2019 budget. It was available on loans availed for purchasing an affordable house. The budget announced the extension of this scheme until the year 2022. Thus, any home buyer applying for a home loan to purchase an affordable home before 31st March 2022 can avail of this deduction in the interest.
In addition to these incentives for buyers, the government will also extend the tax holiday for projects in the affordable housing sector up to 31st March 2021. It is expected to keep up a steady supply of affordable homes. The move has prompted some developers to consider entering into the affordable homes market. If it happens, it will revitalise home buying by offering more options.
One of the most crucial considerations of home buying is the quality of infrastructure around housing projects. The government plans to set up a professionally managed Development Financial Institution (DFI) to facilitate and enable long-term debt financing for infrastructure. They have allocated Rs 20,000 crores to capitalise the DFI.
Additionally, they are pushing to fast-track Metro projects in important cities such as Kochi, Chennai, Bengaluru and Nagpur. They plan on harnessing new technologies to develop Metros in Tier-2 cities that will offer the same experience, convenience and safety as the ones in Tier-1 cities, but with one crucial difference. The development costs will be much lower.
The infrastructure sector has been in a slump since the pandemic struck last year. This move, along with significant levels of investment will revive the sector and help it recover from the pandemic slump. The National Infrastructure Pipeline (NIP), announced in December 2019, had around 217 projects worth over Rs 1 lakh crore added to it. It will be a huge undertaking, but one that is vital for the economy in general and the real estate sector in particular.
Now Foreign Portfolio Investors can be a part of debt financing of REITs and InvITs after the government makes changes in the relevant legislations. As a result of this, REITs and InvITs will get easy access to more funds, which in turn will mean more investment in real estate and infrastructure sectors. The budget also proposes to exempt dividend payments to REITs and InvITs from TDS for ease of compliance.
Even though the government had done away with the Dividend Distribution Tax in the previous budget, the dividend was still taxable. If dividend payments are exempted from TDS, it will encourage more investment. The advance tax liability on dividend payments was always an issue as shareholders could not estimate the amount of dividend income. As per the changes suggested in this budget, the advance tax liability will only arise after the payment of the dividend.
Even with all the good tidings that this union budget brought for the real estate sector, it stayed short of fulfilling its biggest wish. The real estate sector still does not get the status of an industry. This has been a long-standing demand of developers. The budget did not to touch upon some crucial topics such as single-window clearance and Input-Tax Credit benefits.
Industry insiders feel that these are crucial oversights but remain hopeful that the government will address these sooner rather than later. They feel these are important factors that could affect the overall pace of development if left unaddressed, especially as the sector is just recovering from the worst effects of the pandemic.
The union budget is clearly aligned towards affordable home buying. The government hopes to fulfil two purposes; reenergise the real estate sector, and make home buying more affordable for all. The latest measures will augment the previous ones like reduction of premiums, hiked differential and RBI’s rationalizing of risk weights. A boom in the real estate sector will have many indirect effects such as increase in employment and more work for other allied industries. But ultimately, it is the home buyer who will benefit the most from these changes, directly or indirectly.