As the countdown to Union Budget 2020-21 begins, the real estate sector, which is battling slow or stagnant sales, is seeking quick implementation of the alternative investment fund (AIF) regime to rescue stressed residential projects.
“The pressure on the Union Finance Minister is as high as it could possibly be, considering the state of the economy. All sectors hope that the government will unleash a plethora of goodies — from tax cuts and other consumption boosters to increasing credit off-take from banks to ease liquidity. But real estate is looking for quick implementation of AIF,” said Anuj Puri, Chairman Anarock Property Consultants.
Puri explained that immediate deployment of the ₹25,000-crore AIF regime is necessary. The clock is ticking and the government needs to act immediately, he said. The allotted funds need to be utilised to full potential without delay. Completion of stressed projects will improve home-buyer sentiment and boost demand. Any further delays will result in a domino effect and add more stressed projects.
“The real estate sector contributes to over 8 per cent of the Indian economy, and, therefore, has justifiable expectations from Union Budget 2020-21,” he said.
According to Puri, the sector expectations include the following:
* Hike the ₹2-lakh tax rebate on housing loan interest rates under Section 24 of the Income Tax Act — This could result in healthier demand for housing, especially in the affordable and mid-segment categories.
* Personal tax relief, either by a cut in tax rates or favourable readjustment of tax slabs — The last increase in the deduction limit under Section 80C (to ₹1.5 lakh a year) was done in 2014 and an upward revision is long overdue.
* Include ITC benefit in GST for under-construction homes — While the GST rate on under-construction properties was reduced to 5 per cent in 2019, the previous ITC benefit was shelved. Already cash-starved developers cannot avail the tax benefit on construction raw materials and the increased costs are passed on to buyers. Providing ITC benefits is a great incentive to reduce property prices and thus, make under-construction homes attractive again.
* Ease liquidity — The ongoing liquidity crunch has a cascading impact across sectors, including real estate. Project delays — the biggest fallout of the cash crunch — have severely dampened buyer sentiments. Easing liquidity will increase capital flow for developers and keep supply — most importantly of high-demand ready-to-move-in homes — healthy. Increased supply also keeps prices in check.
* Improve credit off-take from banks — The NBFC crisis has hit the sector hard, and there is enough justification to warrant credit off-take. Apart from recapitalisation by the government and stringent measures by the RBI, the gross NPAs of banks also improved to nearly 9.1 per cent towards September-end 2019 (against 11.2 per cent the preceding year).
* More incentives for private sector investments in affordable housing — Despite the benefit of infrastructure status for this critically-important segment, developers are unable to get funding from major banks and NBFCs at lower interest rates. The profit margins for affordable housing projects are unattractively low.
* Speed-up infrastructure development — The government’s focus on infrastructure development is beyond dispute, but its plan to spend ₹100-lakh crore on infrastructure over the next five years can only yield tangible economic results with speedier on-ground implementation. There is a dire need to iron out bottlenecks hampering infrastructure growth.
* Implement land reforms — The new lower 15 per cent tax rate for companies looking to set up new factories can be applied only if they are able to acquire land easily. Implementation of a unique identity numbers or UID for land will bring greater transparency to India’s outdated land records system and help attract more foreign investors and strengthen the approval procedure for real estate projects.