Real estate being the country’s second largest employer of India, and the fact that the sector is under severe liquidity crunch, Budget 2020 was a very keenly awaited budget. Budget 2020 was also the key event for any sign of revival in the economy.
Last year, the government had taken several steps like ‘housing for all’ by 2022, tax sops, a sharp cut in GST rates for under-construction flats and a Rs 25,000 crore fund to salvage stalled residential projects. Budget 2020 is also in line with the Sabka Vikaas line that was the hallmark of the 2019 budget.
Personal Income Tax Relief
Heavy taxation faced by homeowners is a fundamental obstacle to the real estate industry slowdown. The marginal personal income tax rate in India at a 10 year high, coupled with 18% GST has caused a heavy burden on taxpayers.
In order to provide significant relief to the individual taxpayers and leave significant money in the hands of the tax payer, Budget 2020 has proposed to bring a new and simplified personal income tax regime. Income tax rates will be significantly reduced for the individual taxpayers who forgo certain deductions and exemptions. This could lead to reviving the consumption cycle in the real estate sector and kick start the economy. Further, additional savings can bring in an upsurge in individual investments in the housing sector.
Attacking the Liquidity Crunch
It is common knowledge that the real estate industry is facing a liquidity crunch. Coupled with the liquidity crisis faced by the NBFCs / HFCs in 2019, it has become a double whammy. The Budget 2020 proposal to further enhance the credit guarantee scheme for NBFCs and HFCs is expected to provide some respite to the market. The government has decided to further bolster the guarantee scheme for NBFCs and HFCs and offer subordinate debt to MSMEs. It should help bring liquidity into the real estate market alongside the abolition of DDT.
Affordable Housing
Continuing the last budget’s focus on affordable housing, the tax benefit on affordable housing loans was decided to be extended by a year up to loans sanctioned till March 2021. This will push more first-time home buyers to hurry up their decisions to purchase their dream homes. This should take care of the excess inventory in the market.
Whats more, the date of approval of tax holiday provided to developers of affordable housing would also be extended by one more year. This should encourage small and medium sized real estate developers in states like Assam to transition into affordable housing. The luxury segment in the tier 2 cities is suffering due to lack of consumer demand, and the more attractive investment for a builder would be to focus on affordable housing.
Positive on warehousing segment
The National Logistics Policy and the proposal of the viability gap fund for development of warehouses would provide impetus for increasing construction of warehouse facilities. Budget suggests the PPP model to encourage building of warehouses supply which is expected to rise from 211 million sq ft in 2019 to 379 million sq ft in 2023. Single-window clearance will expedite supply, as approval time is expected to reduce by six months.
Conclusion
Although Budget 2020 was a good budget for infrastructure, it was left much to be desired for the real estate and real estate construction segments. The crisis created due to the policy restructure of 2016 (RERA, GST and NBFC’s) has created a slump in the market. Allowing tax breaks for buying property could have gone a long way in sorting the real estate sector, causing a rise in domestic housing demand. The budget 2020 needed incentives such as completion of stuck projects and allowing the home buyers to full income tax benefit, immediate and effective disbursal of the Rs. 25000 crore stress fund of 2019 budget, removal of tax on vacant properties, increasing the bracket to claim tax benefit on home loans etc.
