The Union Budget has continued its focus on real estate sector, particularly the affordable housing segment. It has favoured both home buyers and developers.

Developers currently claim 100 per cent deduction of profits (under Section 80 IBA) from affordable housing projects. The deduction is applicable only if these projects are approved during the period from June 1, 2016 to March 31, 2020. Now, this benefit has been extended up to March 31, 2021, in a bid to increase the supply of affordable housing units in the market.

Similarly, for individuals, the existing deductions (under Section 80EEA) of ₹1.5 lakh on interest available for housing loans sanctioned during the period from April 1, 2019 to March 31, 2020 has now been extended up to March 31, 2021. The deduction continues to apply for first time home buyers, purchasing affordable house property (valued at ₹45 lakh). This deduction continues to be available over and above the ₹2 lakh deductions under Section 24 of Income Tax Act.

The Background

Real estate sector had been reeling under pressure due to lack of demand, high prices and delayed project deliveries in the last few years. The overall consumption slowdown in the economy last year has also taken its toll.

However, barring few players, companies in the realty index have performed well in the September quarter FY20, registering revenue growth of 13 per cent y-o-y. This is thanks to the developers’ focus on affordable housing projects and buyers’ preference towards quality builders. Also, better leverage and presence in commercial segment, particularly in office space have helped these companies. For instance, Brigade Enterprises, which has most of its projects in the mid-income housing segments, have witnessed increase in sales. The company’s new-sales volume grew 73 per cent y-o-y for H1FY20. Sobha too witnessed healthy sales thanks to its presence in low-ticket size projects. News sales volume grew 9 per cent y-o-y during the nine months ended December 2019.

Taking cue from the traction in low-ticket size projects, large companies like Sunteck Realty, a Mumbai-based realty player, predominantly in luxury and premium segment, has launched projects in mid-income segments. Similarly, Prestige Estate Projects too has forayed into mid-income and affordable housing categories.

However, unsold inventories levels continue to remain high at 4.45 lakh units and it would take over two years to sell the entire inventory, according to a report by Knight Frank, a real estate consultant. While the real estate regulator, RERA, has made firm progress in restoring buyers’ confidence to an extent, it still needs improvement. Also, the Centre’s various measures — including the announcement of an alternative investment fund (AIF) to provide last-mile funding and corporate tax reductions — are yet to make a meaningful impact.

The verdict

Though some of the expectations such as infrastructure status to real estate, single window-clearance and benefit of input tax credit in GST have been left out in the budget, affordable housing has received sustained focus this time; encouraging home buyers towards purchase of house property.

It has also benefited developers. With the extension of tax holiday (100 per cent deduction of profits) in affordable housing for another year, realty players may launch more projects in the affordable segment in the near future. Also, given the higher traction for affordable and mid-income projects, developers including Godrej Properties, Prestige Estate Projects and Brigade Enterprises have been able to realign themselves to tap the opportunity in these segments and launch new projects.

The trend is likely to continue going ahead with new projects launches boosting the demand in residential segment.

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