What Will The Budget Briefcase Of 2022 Produce For Real Estate?

Date : January 28, 2022

What Will The Budget Briefcase Of 2022 Produce For Real Estate?

Emerging from the year of revival 2021, the watchers of the industry expect a stimulating budget to empower this optimistic real estate of 2022 as the international fall followed by the pandemic reincarnated the perspective of homebuyers towards a sense of comfort, safety and endurance achieved from the possession of an encompassing abode. In the year of restoring pre Covid normalcy, the industry elites, along with young millennial property investors, expect government companionship to cater for the reinstating swing of the real estate industry for comprehensive wealth creation in the next phase of fund allotment and plug the gaps in demand and supply.

Highlights from the Union Budget of 2021

Amidst the ramification of the crumbling economic climate in our country, a fair range of real estate expectations remained discontented with declined housing sales in major metro markets compared to 2020. With an extended decline in a consecutive year, the sales are yet to match the pre-Covid timeline. Nevertheless, the Union Budget of 2021-2022 addressed the Atma Nirbhar Bharat philosophy revolving around the idea of fueling the startup ecosystem to ramp up a holistic self-sustainable economic atmosphere in the country.

The revival year witnessed a budget. The following are a few insights that influenced the real estate market in 20211.

  • The budget permitted the affordable housing developments to benefit from a tax holiday till April 2022, considering the enhancement of affordable housing in the country.

  • Extension of income tax deduction of ₹1.5 lakhs for affordable homes up to 2022.

  • Tax exemptions on rental properties for migrant workers.

  • The safe harbour limit increased from 10% to 20% for the primary sale of residential units.

  • Debt financing enabled for InVITS and REITs.

  • A total allotment of ₹54,581 crores to the Ministry of Housing and Urban Affairs.

In a recent interview, Mr. Niranjan Hiranandani, the managing director of the Hiranandani Group, and vice chairman of NAREDCO, shared his valuable insights on the key elements of anticipation in budget 2022. The estimated blueprint for real estate in 2022-23 includes the following pinpoints

Pragmatise Long Term Capital Gains

The budget of 2022 is expected to rationaliselong term capital gains from housing and properties with a reduction in the period of qualification as a long term capital asset to 12 months from the current 36 months. Additionally, the taxation is expected to be plugged at 10%.2

Augment Affordable Housing

Not only incentivising the developers for establishing projects in small towns and cities will be a step ahead to enhance the residential infrastructure of private and government-funded townships, but also redefining affordable housing will restructure the housing plans. It is practically implausible to acquire an apartment of reasonable decency below the current slab of 45 Lakh in metro cities. Therefore, the anticipations include an uplift in the existing ceiling to 1 crore. Additionally, an extension in the benefits of the Pradhan Mantri Awas Yojana and Credit Linked Subsidy Schemes can inspire the optimistic first time home buyers3.

Enhancing Housing Loans

Expanding the breathing space for the volume of home loans can directly upgrade the home buying process across demographics with ascertained SOPs on tax benefits on the rate of loans. In 2017, the Reserve Bank of India granted a loan to value ratio (LTV) of 90% for home loans for affordable homes of 30 lakhs or less, As per Nirananjan Hiranandani, the budget of 2022 can extend these benefits, which will assist the MIG and HIG segments2.

“Allow full interest on housing loans as a deduction under the Income Tax Act without any ceiling. In the alternative, the limit should be increased to Rs. 5 lakh from the current Rs. 2 lakh u/s 24 of IT Act 196 to incentivize home buyers and spur demand”, says Nirananjan Hiranandani2.

The government should allow for set-offs on second property purchases and interest disbursements for the salaried class. It must ensure that low-interest rates on home loans are maintained for at least the next 4-5 years. Instead of the 75% to 80% cap, banks must be eligible to lend up to 90% of the cost of a home. To encourage demand, it's also critical to maintain affordable housing interest subsidies, higher FSI, and tax exemptions.

Additionally on subvention schemes, Mr. Nirananjan Hiranandani says2, ”Subvention schemes ban to be uplifted as it doesn’t favor home buyers. As a large segment of these do not have the capacity to pay both , EMIs on their under-contsruction home loans as well as house rent.”

Work from Home, Rental market and taxation

As the trend of ‘Work Anywhere, Live Anywhere’ garners traction amongst the working populace, the demand for rental housing will be on uptick. Career mobility, remote and hybrid work models will encourage the government to emphasize on rental housing in the form of taxation benefits for tenants like enhancement in HRA tas exemption is one such option. The deduction allowed is up to 50% of employee basic salary if he/she lives in metro cities in India and up to 40% in any other city. If the budget enhances this limit, it will encourage uptick in rental housing across geographies. Another, positive announcement can include making rental income fully tax deductible to encourage creation of rental housing stock in order to meet the ambition of Housing for All.”2

Industry Status And Taxation

A myriad of Non-Banking Financial Companies (NBFCs) fell face down, slamming an already crumbling real estate market with a liquidity crux and debt crisis. The damage control can commence with baby steps like designating the real estate sector to an 'industry' status which will aid the small developers and eliminate the funding issues. The concerns for capital can be tackled by revision and simplification of GST with input credit for developers for a sizable difference in the project costs, diminished stamp duty and registration charges (a practice in several states). There should be an emphasized focus on the fact that the real estate business is India's second-largest employer. By 2025, the industry is predicted to have grown to a market size of $1 trillion, generating roughly 13% of the economy's GDP. These beneficial policy improvements will give the industry a boost and enable strong developers to create high-quality facilities that add value to the economy.

Fiscal stimulus like stamp duty waiver, lowering of ready reckoner rates, low interest rates will augment home buying demand and improve sales velocity. Incentivizing and subsidising the real estate sector will have a multiplier effect on 270 allied industries and additional job creation, as per Mr. Niranjan Hiranandani.3

A steady exit from the gloom of the pandemic is preparing its stakeholders to assemble with futuristic strategies for housing and investment. As the optimistic anticipation of the ambitious investors looks forward to the government compliance for an exciting and prosperous future of real estate, Hiranandani Developers buckle up to deliver the bliss of the most premium and elegant living through its residential and commercial space offerings across its award winning townships in Mumbai Metropolitan Region




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