Union Budget 2019-20 has evoked mixed reactions from the real estate sector, with the push for affordable housing and infrastructure, along with the promotion of rental housing, being lauded. However, builders and developers are miffed that the Budget failed to address long-standing expectations regarding industry status for the sector, single-window clearance and reforms in the Goods and Services Tax (GST).
ANAROCK Property Consultants Chairman Anuj Puri said, "As far as real estate is concerned, the Budget had a few hits and several misses." Puri said that from the real estate perspective, the Budget did not meet many expectations, as it failed to address the sector's most pressing concerns. He added that the sector might not see consumers and investors return to the market in sufficient numbers, barring in affordable housing. "The all-important 'industry status' remained elusive, taxes were not sufficiently moderated and land reforms were not mentioned at all."
Affordable housing push lauded, but glitches remain
While presenting her maiden Budget, Finance Minister Nirmala Sitharaman on Friday raised the tax deduction limit to Rs 3.5 lakh on the interest paid on home loans sanctioned during this financial year for the purchase of the first home worth up to Rs 45 lakh. Stating that the interest paid on housing loans was currently allowed as a deduction to the extent of Rs 2 lakh, the finance minister said, "In order to provide a further impetus, I propose to allow an additional deduction of up to Rs 1.5 lakh for interest paid on loans borrowed up to March 31, 2020, for purchase of an affordable house valued up to Rs 45 lakh."
Sitharaman also announced that under the Pradhan Mantri Awas Yojana-Gramin (PMAY-G), 19.5 million homes would be provided to eligible beneficiaries till 2021-22. These houses would have amenities such as electricity, LPG connections and toilets.
Housing.com, Makaan.com and PropTiger.com Group CEO Dhruv Agarwala said that the standout announcement in Budget 2019 was the additional deduction of Rs 1.5 lakh for those seeking home loans for affordable housing projects. "This boost on the demand side was clearly needed, considering that many home buyers have turned fence-sitters, awaiting such tax sops or a correction in prices. On the supply side, over 8.1 million houses have been sanctioned, out of which construction has been completed for 2.6 million houses under the PMAY Urban scheme. This, too, shall continue to boost the market for affordable homes," he added. Welcoming the move, Wealth Clinic CMD Amit Raheja said, "Additional deduction of Rs 1.5 lakh on interest on loans will boost the buyers' sentiment."
Some industry players, however, have criticised the Rs 45-lakh cap on the value of affordable houses eligible for the tax sop. ABA Corp Director and CREDAI Western UP President (Elect) Amit Modi said that while the sector appreciates that the Budget has emphasised on affordable housing and PMAY, at the same time, the government has missed the bus when it comes to millions and millions of first-time middle-class buyers who were looking forward to this Budget before their first real estate purchase. "Even a small 1-2 BHK apartment in Tier-1 Metro cities such as Delhi, Mumbai and Bengaluru will cost Rs 50 lakh and upwards. These urban buyers, who were looking for ease of living in cities, have been completely ignored in the process," he added.
ANAROCK's Puri said that the Rs 45-lakh budget bracket for properties that get an additional Rs 1.5 lakh income tax deduction is also ineffectual for urban homebuyers in the main cities. "The prevailing high property prices within the municipal limits of the major cities prevent builders from launching affordable housing projects there, while lack of basic infrastructure facilities in the peripheral areas – where housing within Rs 45 lakh could be developed – discourage buyers," he explained.
Bhutani Infra CEO Ashish Bhutani said that Budget 2019-20 continued the government's consistent approach towards affordable housing. "However, with the Budget only catering to low-cost housing, the middle-class housing segment has been completely ignored," he added.
Infra, rental housing push and HFC regulation hit the spot
Agarwala said that initiatives such as improving roads, suburban railways and metro connectivity, creating a robust water management system, working on the 'Ease of Living' and investing Rs 100 trillion in infrastructure over the next five years would create more liveable cities and encourage people to invest in projects even in peripheral areas, and not overcrowd the central and secondary business districts.
ANAROCK's Puri said that a major boost has been given to infrastructure development with regard to all forms of physical connectivity and through the government's planned investment in the sector over the next five years. This would significantly benefit the real estate sector and particularly increase the demand for logistics and warehousing. "However, the actual benefit will depend on its on-ground implementation," he added.
In her Budget speech, Sitharaman had said that several reform measures would be initiated to promote rental housing. "Current rental laws are archaic, as they do not address the relationship between the lessor and the lessee realistically and fairly. A model tenancy law will also be finalised and circulated to the states," she added.
Regarding land parcels held by public sector units, Sitharaman said that large public infrastructure and affordable housing projects could be developed there.
Gaurs Group MD and CREDAI Affordable Housing Committee Chairman, Manoj Gaur, said that Budget 2019-20 has been heartening, where Confederation of Real Estate Developers Association of India's (CREDAI's) long-standing proposals to reform archaic rental laws and promote public housing on government land have been among the immediate policy agendas outlined by the finance minister.
In the Budget, the government also took away the powers of the National Housing Bank (NHB) to regulate housing finance companies (HFCs) and handed them over to the Reserve Bank of India (RBI). Experts have said that this would ensure that there is greater parity in regulations for HFCs and NBFCs. Further, this enables the RBI to directly give liquidity support to the HFC sector.
Gaur said that with the regulation of housing finance companies returned to the RBI from the NHB, the sector hopes that the central bank would bring about much-needed reforms for financing the real estate sector, like giving priority sector status to housing finance and lowering the cost of funding. "HFCs coming under RBI will also help in streamlining the financial situation," added Gulshan Homz Director Deepak Kapoor.
Major misses on liquidity, GST and regulatory fronts
ABA Corp's Modi said that the legitimate sector concerns, including industry status for the real estate sector and online single-window clearance, have been missed out in this Budget. "We feel that these steps would have made a huge difference in transparency and turnaround time in delivery of housing to the masses across the country, while contributing towards the goal of 'Housing for All' by 2022," he added. Concurring, Sushma Group Executive Director Prateek Mittal said, "As a developer, we had certain expectations from the government for this Budget that have not been fulfilled, which includes our demand for industry status, single-window clearance and reinstatement of input tax credit (ITC) in GST."
Industry status for the sector has been a long-standing demand. While the government accorded industry status to the affordable housing segment in 2017, builders and developers feel it should be extended to the entire sector. Experts say that not having industry status has made it difficult for the real estate sector to avail of legitimate finances from banks and other financial institutions.
Single-window clearance for projects is another long-standing demand, which the sector expects the government to address. In a pre-Budget Business Standard copy, ABA Corp's Modi had said that given the multiple permissions and approvals that developers have to secure and the lack of single-window clearance at present, it can take anywhere from 18 to 36 months before beginning any project.
Further, in February 2019, the GST Council lowered tax on under-construction properties to five per cent from 18 per cent, and affordable housing projects to one per cent from eight per cent, with effect from April 1. This rate cut, in effect, did away with the ITC or refund given to builders on taxes paid on inputs.
ANAROCK's Puri said that without ITC benefits, builders suffer a major cut in their profit margins. "Not only are the consequent losses offset by higher prices to buyers, but they also result in a curtailed supply pipeline, which does not bode well for amenable pricing going forward," he explained.
The real estate sector was also hopeful that the government would resolve the liquidity crisis it is facing. In September last year, the crisis became apparent after infrastructure lending major IL&FS defaulted on a few of its commercial papers, which impacted several segments, including the real estate business.
Puri said that to revive the ailing real estate sector and ease the liquidity crisis, the government has to revive investor sentiment. "However, Budget 2019-20 failed to announce sufficient key initiatives and measures to bring investors back to the real estate market and thereby help pump some badly-needed liquidity into the system," he added.