Budget 2021

Real Estate sector could be heading to a worse time post-budget

Varun Aggarwal Mumbai | Updated on February 01, 2020

Real estate buyers could lose a major tax incentive while buying a new home. With the new personal income tax regime coming in, although optional, the tax incentives on interest payment will have to be foregone.

The impact could be severe on the real estate industry in India, which is already facing one of the biggest slumps ever with an unsold inventory continuing to be piling up.

The new personal tax regime will make it simpler to file taxes, but you’ll have to forego all the deductions, which includes interest paid on your house loan. The ₹2 lakh rebate will be a lot to give away for most buyers and may further dampen the sentiment in real estate.

“Apart from the affordable housing push and personal tax relief, no major benefits came in for resolving the current housing mess. For instance, a hike in the INR 2 lakh tax rebate on housing loan interest rates under Section 24 of the Income Tax Act could have kick-started healthier demand for housing, especially in the affordable and mid-segment categories. But there was no announcement in this regard,” said Anuj Puri, Chairman – ANAROCK Property Consultants.

The budget also missed out on making any major announcement for easing liquidity in the real estate sector – a major worry for most developers.

"From the real estate sector point of view, it had been disappointing. Overall, we would have liked to see a few of the several long-standing needs of the real estate sector be addressed such as granting of the industry status, one-time rollover, tax on unsold inventory, tax to individual investor for notional income on second or third home, offset of loan interest from income, developer subvention and RERA as single body for customer grievances. After witnessing the slew of supportive initiatives last year, we had high expectations from the first budget of the decade to be able to bring the real estate sector back on the path of sustainable growth,” said Sanjay Dutt, MD & CEO, Tata Realty and Infrastructure.

“Project delays - the biggest fallout of the cash crunch – have severely dampened buyer sentiments. There was a dire need to address this concern immediately,” Puri said.

The Budget also did not announce any measures about the implementation of land reforms. The lower 15 per cent tax rate for companies looking to set up new factories can be applied only if they can acquire land easily. Further, bringing greater transparency to India’s outdated land records system would help attract more foreign investors and limber up the approval procedure for real estate projects.

There were some greenshoots for real estate sector in the budget. For instance, capital gains tax paid on the differential of circle rate and real estate transaction value will now apply only if the difference is over 10 per cent. Previously, it applied to all transactions with a difference of over 5 per cent in circle rate value.

“The proposal to extend tax holiday on profits earned by developers is welcome as last year the real estate industry suffered due to low sales figures. The government has also extended additional ₹1.5 lakh tax benefit on interest paid on affordable housing loans which is a relief to homebuyers. This along with the revision of the income tax slabs, will encourage home buyers to invest in their dream homes," Manish Ramjiyani, Managing Committee Member, CREDAI MCHI RAIGAD, said.

The allocation of ₹100 lakh crore for infrastructure development in the next five years is a move in the positive direction, most believe.

“The announcement made by the FM for bringing relief to NBFCs will prove to help address the liquidity situation in the real estate industry. This is further expected to improve sentiments among the financial institutions and credit options for big and small developers,” Anshuman Magazine, Chairman and CEO - India, South East Asia, Middle East and Africa, CBRE, said.

Published on February 01, 2020

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