Real estate expectations from the Union Budget 2020

From industry status to income tax relief, the real estate sector expects various demand-generating measures from the upcoming Union Budget 2020-21. The focus of the Union Minister should not only be on resuscitating the property market but also on the revival of the economy as a whole.

The crucial steps that may act as an impetus to the real estate sector include income tax relief policies, increased deduction on home loan interest rates and the rationalisation of Goods and Services Tax (GST). The grant of the industry status would also render a significant boost to the real estate sector. The real estate sector has witnessed the impact of industry status on affordable housing; therefore, a similar advantage to the entire realty sector is the biggest expectation of the industry stakeholders from the upcoming Union Budget 2020.

Income tax relief: Increasing the limit for income tax deductions would incentivise new home buyers and would widen the market opportunity. Hiking the tax rebate on housing loan interest rates by Rs 2 lakh would also boost the market demand, especially in the affordable and mid-segment categories. Besides, the government should also consider additional income tax deductions for those investing in the affordable housing segment. 

Implementation of Alternative Investment Fund (AIF): The government's decision to provide funds for stalled real estate projects is a move worth appreciating. However, such emergency funds should be implemented at the earliest. The real estate sector has already suffered for the last three years; the additional delay in executing remedial measures would imply further damage to the industry.

The fund allotment would not only help the builder community, but the homebuyers who are awaiting the possession of their dream homes would also benefit. As part of the measure, the government will add Rs 10,000 crore into the emergency fund, while the State Bank of India (SBI) and the Life Insurance Corporation (LIC) will contribute Rs 15,000 crore. 

GST rationalisation: The current taxation structure for the real estate sector is not efficient and could perform better if the government streamlines it across all the aspects of the industry. Since the reduction in the GST rate on under-construction properties has failed to create a desirable impact, the government should revisit the tax rates levied on construction materials, especially cement. Rationalising the GST rates of construction commodities would bring down the construction cost burden and the overall home price.

Industry status: Union Budget 2017 saw affordable housing getting an industry status. This year, realtors expect the entire real estate sector to get an industry status. The development would not only mean a lower cost of financing for real estate developers but also affordable homes for end-buyers. Overall, real estate growth would have a multiplier effect on the economy as a whole. Hence an industry status to the sector is utmost essential.  

Single window clearance: Real estate is inherently a high-risk sector due to the lengthy project completion timelines and uncertainty pertaining to the project approvals. Generally, it takes around 24-36 months for a builder to get all the project related approvals in place, which results in construction delays and subsequently impacts the rate of return. While the implementation of Real Estate (Regulation and Development) Act 2016 (RERA) has enforced transparency with the approval authorities maintaining high levels of compliance and efficiency, the Union Budget 2020 should further cement this streamlined process and implement single-window clearance. The move will ensure that the developers receive all the project related approvals within a specified period. Further, it would also curb the construction cost and thereby, the home acquisition cost.

Overall, the real estate sector needs more reforms, especially on the taxation front to increase the housing demand and lower the outgoing costs for builders. The past three years have seen numerous policy changes that have dramatically impacted the real estate sector. These reforms have changed the dynamics of how the industry conducts its business and created new opportunities. The industry is expected to employ over 60 million people and reach USD 180 billion in 2020, comprising 11 percent of the GDP. Therefore, robust support is essential from the government to help the real estate sector looks reach new highs in 2020.