Budget 2021 : Impacts on Real Estate Sector

Date : February 03, 2021

Budget 2021 : Impacts on Real Estate Sector

Introduction :

Over the years, real estate prices have grown immensely, and the majority of the credit gets diverted towards growth in the corporate sector and trade. According to IBEF ( India Brand Equity Foundation ) the construction industry ranks third among the 14 major sectors in terms of direct, indirect, and induced effects in all sectors of the economy.

The real estate market has faced several disruptions in the past few years. Demonetisation pushed demand off the cliff in 2016. The sector had barely recovered when the GST rollout and introduction of the Real Estate Regulation Act kicked in. In March 2020, real estate developers were sitting on inventory that would take roughly 15 quarters to clear. But changes to the 2020 budget gave a push to the real estate sector which saw some growth in spite of the slowdown caused by the pandemic.

How the pandemic affected the Real Estate Sector in India :

In 2020 the entire world witnessed a global pandemic that caused a major stir in a lot of sectors. Although the real estate market was one of the sectors to take the biggest hit, with immigrants and migrants vacating their homes and going back to their hometowns, it surprisingly managed to build its reputation back again. During the pandemic with everyone in lockdown made people realize the importance of space and privacy. With new norms like working and studying from home, families were on the lookout for bigger space.

Government’s support towards affordable housing :

The amendments made in the 2020 Financial budget such as 'Housing for all' gave the public an opportunity to afford a home.

Home loan rates saw a major dip in prices as they fell to below 7% which is the lowest it has been in the past two decades. Houses started selling at a greater pace.

The 2021 Financial Budget :

Today, 01 February 2021, the financial budget was presented by the Finance Minister- Mrs.Nirmala Sitharaman in which she brought about how the budget is focused on helping the Health sector and construction sector largely. The budget this year has been very transparent and has been able to provide information as to where the money is exactly going. This year the Ministry of Housing and Urban Affairs has been granted Rs 54,581 crore in the Budget 2021.

With reference to the previous year’s budget for real estate, certain amendments like the deduction of Rs. 1.5 lakhs on interests toward affordable housing loans has been extended to 31 March 2022. Initially, in 2019 the government provided an additional deduction of interest, amounting to Rs 1.5 lakh, for a loan taken to purchase an affordable house.

Also to promote Affordable Rental Housing for migrants, the Finance Minister has proposed to allow a tax exemption for notified Affordable Rental Housing projects.

Debt financing of InVITs (Infrastructure Investment Trusts) and REITs ( Real Estate Investment Trusts) by foreign portfolio investors will be enabled by amendments in relevant legislations. This will augment funds for the Infrastructure and Real Estate sectors.

An Asset Reconstruction Company and Asset Management Company would be set up to take over existing stressed assets of public sector banks and then dispose of them to Alternate Investment Funds for eventual value realization.

Infrastructure is a sector that needs long term debt financing. 1016km of the metro and RRTS are still under construction in over 27 cities. The government is going to introduce two new technologies i.e., MetroLite and MetroNeo, to provide Metro rail systems at a lesser cost to Tier 2 cities and peripheral areas of Tier 1 cities.

The Highlights of the Budget with reference to Real Estate :

1. The extension of the additional deduction on affordable housing loans up till 31 March 2022.

2. Affordable Rental Housing for Migrant workers and laborers.

3. Increase in safe harbor limit for the primary sale of residential units.

4. Easy accessibility for REITs and InVITs.

5. Infrastructure to start booming especially, concerning the Metro.

6. Stressed Asset Resolution.

7. Construction workers.

A budget for every man

This year’s budget is very different as the government has been very transparent about the costs of expenditure towards developing the country. The government has provided a solid base for developing infrastructure to take the country ahead. All in all, this budget has something in it for both the homebuyer and the developer.

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