Real Estate pins hope on Union Budget 2022-23

Among other factors, there is a need to redefine the definition of affordable housing criteria to extend the benefit of additional deductions to more buyers, suggests Anuj Puri, Chairman, ANAROCK Group

The residential sector witnessed a strong comeback in 2021 with housing sales in the top seven cities rebounding to 90 per cent of the pre-pandemic levels and new launches reaching 2019 levels. While the housing sector’s prospects generally look upbeat in 2022, it remains to be seen to what extent, if any, the new corona virus variant, Omicron, impacts real estate activity. So far, it has not had any seriously dampening impact. However, sentiment revival in residential real estate during the worst parts of the first and second waves of the pandemic hinged heavily on policy support. The Reserve Bank of India (RBI) and the government have proactively aided the sector with various demand boosters.

The stamp duty cuts and the tax benefits’ extension on affordable housing in last year’s budget were strong moves that made a difference. Despite rising inflation, the RBI kept the repo rates unchanged for the last nine consecutive bi-monthly monetary policies, thereby extending the benefit of lower interest rates to homebuyers. These measures helped the housing sector, which plays a significant role in the overall economy, to maintain an even keel during a very rough phase. The residential sector looks forward to further support beyond the mainstay demands of industry status, easy availability of finance and GST rates reduction.

With regards to the upcoming Union Budget 2022-23, some of the significant moves which would help spur residential demand include:

Home loan deduction limit (u/s 24): There is a need to hike the Rs 2 lakhs tax rebate on housing loan interest rates under Section 24 of the Income Tax Act to at least Rs 5 lakhs. This could instantly infuse robust demand for housing, especially in the affordable and mid-segment categories.

Deductions for home loan principal repayment, over and above the existing 80C: Personal tax relief, either via a cut in tax rates or revised tax slabs, would be a welcome move – especially since the last increase in the deduction limit under Section 80C to Rs 1.5 lakhs a year took place in 2014. The time is certainly ripe for a further upward revision, but there is no denying that the government currently lacks elbow space for such a move. Instead, it may focus on providing more incentives to MSMEs and SMEs struggling post the pandemic. Also, government spending on infrastructure may further get a boost. There is a need to redefine the definition of affordable housing criteria to extend the benefit of additional deductions to more buyers.

Redefine the definition of affordable housing criteria to extend the benefit of additional deductions to more buyers: According to the Ministry of Housing and Urban Poverty Alleviation, affordable housing is defined based on the property size, its price and the buyer’s income. For instance, affordable housing is a unit with carpet area up to 90 sq. metres in non-metropolitan cities and towns and 60 sq. metres in major cities and valued up to Rs 45 lakhs for both. The central bank’s definition, on the other hand, is based on the loans given by banks to people for building homes or buying apartments.

The government should seriously consider revising the city-wise pricing parameters to include a broader customer base under the benefits extended to this segment. While the size of units as per its definition of 60 sq. metres carpet area is relatively appropriate, prices of units up to Rs 45 lakhs are not viable across most cities. For instance, a budget of Rs 45 lakhs is far too low for a city like Mumbai – it needs to be increased to at least Rs 85 lakhs.

As for other top cities, the budget range should be increased to at least Rs 60-65 lakhs. With this price revision, more homes will fall within the affordable price tag, allowing more buyers to avail multiple benefits like lower GST rates at 1 per cent without ITC, government subsidies and the tax deduction of a total Rs 3.5 lakhs on interest repayment of home loans.

Also, more government-controlled land needs to be unlocked to create affordable housing. Some portions of land across cities falling under the Department of Heavy Industries, Indian Railways, Port Trusts, etc. can be released by respective government bodies. Increased availability of low-cost land will also help rein in property prices significantly.

Extend benefits of affordable housing: Affordable and rental housing got a big boost in the last Union Budget with the government extending the period for extra deduction of Rs 1.5 lakhs for loans up to March 31, 2022. A further extension of this benefit will ensure buoyant demand for affordable housing in 2022. Further, extending the tax holiday for affordable housing projects by another year will help bring in more new supply within this segment. As per ANAROCK Research, affordable housing in 2021 accounted for approximately 26 per cent of the overall supply across the top seven cities. Tax exemption for ARHC will also help stave off labour shortage challenges in case of any future disruptions.