Union Budget 2022 – Real estate sector expectations

The Union Budget for FY 2022-23 is just days away and all eyes are on what the finance minister has in store for us. While there are many expectations, one of the most anticipated announcements is the ₹ 5 lakh income tax deduction on home loan interest. This would be a huge boon for homebuyers and could help to improve demand for residential real estate. Keep reading for more details on this budget expectation.

The real estate sector witnessed a strong comeback last year as housing sales in top cities jumped to 90% of the pre-pandemic levels while newly launched units reached 2019’s numbers. The third wave may have caused uncertainty, but with expectations high from the upcoming Budget update on these trends – there seems little chance that will dampen spirits any time soon!

The residential sector is looking forward to further support beyond the mainstay demands of industry status, easy availability of finance, and GST rates reduction.

The following decisions, if announced in this upcoming Budget will help spur up residential demand:

1. Home loan deduction limit to be increased to ₹ 5 lakh

The need for a hike in the tax rebate on housing loans has been emphasized by experts, who said that it would result in an instant increase in demand from both buyers and developers alike. There is a need to hike the ₹ 2 lakh tax rebate on housing loan interest rates under Section 24 of the Income Tax Act to at least ₹ 5 Lakh.

This might be the perfect time for a hike in property tax deductions, with indications that more and more people will soon find themselves eligible. Property stakeholders want an increase from ₹ 2 lakhs to around ₹ 5 lakhs – which should bring more salaried individuals into this category as well! This decision can help keep housing demand healthy while also helping developers recover after recent losses and increase their wafer-thin profit margins.

2. Deductions for home loan principal repayment, over and above the existing 80C

Personal income tax relief, either via a cut in tax rates or revised tax slabs, would be a welcome move – especially since the last increase in the deduction limit under Section 80C (to ₹ 1.5 lakh a year) took place in 2014.

Now is the time for a further upward revision in tax slabs/rates, but the government might not have much room for maneuvering such a move. Instead, it might focus on MSMEs and SMEs struggling post-pandemic, providing them more incentives through increased spending on infrastructure which could further get a boost due to another rescue package soon enough!

3. Redefine affordable housing criteria

The current definition of affordable housing is based on the size, price, and income level. For example, affordable housing is a unit with carpet area up to 90 sq. m. in non-metropolitan cities and towns, and 60 sq. m. in major cities and valued up to ₹ 45 lakh for both. The Central Bank’s definition, on the other hand, is based on the loans given by banks to people for building homes or buying apartments.

The government should seriously consider revising the city-wise pricing parameters to include a broader customer base under its benefits. While the size of units as per their definition (60 sqm carpet area) is relatively appropriate, prices for these types tend not to be viable across most cities and this limits their marketability in many regions where they could potentially boost economic growth significantly if priced lower. For instance, a less than ₹ 45 lakh budget is far too low for a city like Mumbai. It needs to be increased to at least ₹ 85 lakh.

As for other cities, the budget should be increased to at least ₹ 60-65 Lakh so that more homes are within the affordable price range, allowing buyers with lower budgets access many benefits like lower GST rates, government subsidies, and the tax deduction of a total ₹ 3.5 lakh on interest repayment of home loans.

4. Extend affordable housing benefits

As per reports, affordable housing in 2021 accounted for 26% of the overall supply across 7 major cities. The tax exemption will help stave off challenges related to a possible pandemic and its labor shortage consequences should there be any future disruptions.

According to domain experts with the recent Union Budget, affordable and rental housing will be booming in 2022. The government extended an opportunity for extra deductions of ₹ 1.5 Lakhs on loans up until March 31st of next year which he says helped fuel demand even more. A further extension of this benefit will ensure buoyant demand for affordable housing in 2022.

5. TDS relief to NRIs

The difference of more than 10% between the circle rates and agreement values of properties translates into tax penalties under Section 43CA of the Income Tax Act. The government must appreciate that this is much higher in certain areas, such as Delhi or other parts across India. Hence, the government should consider extending the relief to up to 20% of the difference.

The 28.49% tax deducted at source (TDS) on property transactions for NRIs is a major pain point that should be reduced since the refund process still takes a significantly longer time.

With the upcoming Budget, it is important for the government to focus on policies that will boost consumer spending and investment. The Budget should continue its focus on expansionary policy measures to boost consumer spending and investment. Measures like extending tax benefits for first-time home buyers, sops for developers engaged in affordable housing projects will have a positive domino effect that could help the real estate sector and the overall economy.