Ensuring 'Aatmanirbhar' Real Estate in 2021
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Union Budget 2021 is more or less a balanced one with many hits and few misses so far as the real estate industry is concerned. The push towards the development of infrastructure across the country highlighted that the government is cognizant of the fact that real estate, alongside agriculture, is the backbone of the country’s economy. Here are some of the encouraging proposals announced by the the finance minister in her speech about India’s real estate sector. Let’s see how they impact us.
The regulatory focus on affordable housing
Some of the measures proposed in the latest Budget reinforced the Prime Minister’s vision of Housing for All by 2022. To incentivize homebuyers, the government has extended the tax reduction of INR 1.5 lakh on interest paid on affordable housing loans by one year to March 31, 2022. The government also announced tax exemption for notified affordable housing for migrant workers. These proposals are expected to drive the demand for affordable housing by encouraging potential homebuyers to invest in residential real estate.
The extension of tax benefits for developers whose affordable housing projects are completed till March 31, 2022 is a welcome move. The amendment in InvIT and REIT structures for debt investors would drive greater ease of fundraising and providing the much-needed momentum to the commercial real estate asset class. As part of it, dividend payments to REIT and InvIT are also exempt from TDS. This, in addition to exempting duty on steel and copper scrap for a specified period, is aimed at mitigating the pandemic-induced stress on the affordable housing sector.
Another proposal involves reducing the tax burden on senior citizens above 75 years. It is bound to encourage developers of the senior living projects since more senior citizens can look to invest in this space.
Given that affordable housing attracts a GST of only 1 per cent, the introduction of INR 1,000 stamp duty in Maharashtra will strengthen the production of affordable housing in the state. The FM also announced the infusion of capital worth INR 20,000 crore in public sector banks (PSBs). This accompanied by the decision to create the asset reconstruction management company to transfer bad and stressed loans, the government has taken some concrete steps towards bolstering the liquidity landscape. This, in turn, will further stimulate the home buying activity and will also ease the access to credit for property developers.
National infrastructure pipeline
The government has sought to link capital to infrastructure through the formation of an infrastructure-focused Development Finance Institution (DFI) with a capital base of INR 20,000 crore (approximately $3 billion). Improving the flow of funds in this sector was the need of the hour and the setting up of a DFI, along with zero-coupon bond issuance by IDFs, will go a long way in the economic revival on the back of catalysed infrastructural development.
This move is directly linked to the government’s decision to monetize public infrastructure assets that will also provide impetus to new infrastructure construction. The FM has conveyed the plans to set up a national infrastructure pipeline targeting an investment of INR 111 lakh crore over the next five years. Some of the budgetary allocations and decisions in this direction include central allocation of INR 5.54 lakh crore, state allocations of INR 2 lakh crore, and the proposal to tap into the budgetary resources of PSUs.
The FM also announced the institution of InVITs aimed at monetising assets in highways, power transmission, gas pipelines, dedicated freight corridors, airports, etc. The launch of a national monetization pipeline and dashboard will also enable the seamless and transparent tracking of the entire process; this will strengthen public trust and investment prospects in the real estate sector. Besides encouraging greater private sector participation, these proposals will assist the government in enhancing the flow of funds for the development of mission-critical infrastructure assets.
Real estate projects beyond tier I regions to get a boost
A part of the latest Budget was allocated for the creation of more economic corridors aimed at boosting the development of public infrastructure projects such as roadways, ports, railways, airports, warehousing, oil and gas pipelines, etc. Enhanced spending on the development of roadways will improve inter- as well as intra-state connectivity. Plans were also announced to expand the metro coverage across India, with a special focus on developing Kochi Metro, Chennai Metro Phase 2, Bengaluru Phase 2A and B, Nashik and Nagpur Metros, among others.
By enabling a more seamless movement to and from urban centers, these proposals have the potential to propel the development of real estate, both commercial and residential, along the newly proposed transit corridors, especially projects located in tier II and tier III regions. These projects are also bound to attract significant investor interest and, as a result, boost employment generation, thereby contributing towards economic resuscitation.
Towards an Aatmanirbhar real estate
The structural reforms announced in the Budget are aligned with the Aatmanirbhar packages announced last year by the PM in line with Mahatma Gandhi’s vision of making India a self-reliant and self-sufficient nation. Besides promising to accelerate the development of infrastructure, the FM has proposed to institute a separate administrative structure to promote ease of doing business. This move, complemented by a remarkable 34 per cent increase in CAPEX investments in the construction and development of real estate infrastructure, will support the domestic real estate startups and businesses.
The FM also acknowledged NRI homebuyers as important stakeholders within the country’s real estate sector. This is on account of the increased NRI interest in buying properties in India amid the pandemic-led concerns of financial and social security. The Budget has accommodated this phenomenon by increasing the NRI residency limit, which will further stimulate the residential housing segment in the long run.
Having acknowledged the above, the demand for industry status to real estate, and single window clearance is still pending. Reduction of stamp duty in other states is also something that would help the sector recover. Although affordable housing is given a push, the definition of affordable housing is not uniform across cities. Some efforts need to be put into boosting sales of houses in INR 60-80 lakh bracket. And the biggest miss would be not giving a push to under construction properties with large inventory of under construction projects across cities. Model tenancy act is also something that is long overdue now.
The bottom line
In addition to the aforementioned proposals, the extension of tax holiday for startups by another year, a tax exemption for relocating funds to IFSC, and a tax holiday for the aircraft leasing business in GIFT City will further bolster the state of India’s realty space. At the same time, the proposal to raise customs duty on solar inverters to 20 per cent from 5 per cent will likely increase the cost of the commercial and residential developments. However, the decision of monetizing land will serve to balance it out.
Finally, it is worth noting that the main slant of the Budget was towards addressing the immediate concerns that have come to the fore on account of the pandemic. Moving ahead, as the economy gets back on track, we can expect the government to make some big bang announcements that were understandably missing from the Union Budget 2021.