Budget 2020 wishlist: Here are the key challenges for real estate sector

Office space and logistics sub sector continue to be the most popular among long-term and patient investors. Although residential sector continues to face head winds, there could be opportunities brewing in the distressed space. The current state of the sector has caused market participants to adopt more cautious approach with long term horizon.

Key challenges

• Difficulty in accessing finance by real estate developers from banks / NBFCs and lack of long-term cheap finance for large projects. 
• Unsold inventory of residential units specifically under construction projects
• Affordability of homes in urban areas after considering the additional transaction costs.
• Impact of GST on (i) construction costs, especially for Built to Lease assets where subsequent credit is not available, (ii) Premium charges and (iii) Land related arrangements between developers and landowners

Industry ask

• One-time capital gains exemption for purchase of residential unit to clear the unsold inventory and ease the liquidity situation.
• Rollback of set-off of house property losses which is currently limited to Rs 2 lakhs.
• One time exemption from applicability of GST for first time home buyers - This would be help in liquidation of unsold inventory and kick starting the capital cycle.
• Extension of tax holiday for affordable housing projects approved after March 2020.
• Lower withholding tax rate of 5 percent to be made applicable to all interest payment to investors in AIFs and FPIs providing debt to real estate sector.
• Distressed projects - one time incentive to developers taking over existing projects which are under financial / operational distress.