The last few years have been quite challenging for the real estate industry. Prices have largely been flat, demand muted and liquidity very tight. Realising the challenges, the government has taken several steps to help improve sentiment and revive demand.
The introduction of the Goods and Services Tax (GST) and the RERA has helped in boosting transparency and drive consolidation in the sector.
Recently, the government announced setting up of a Rs 25,000 crore alternative investment fund (AIF) to infuse liquidity and revive stalled housing projects.
The interest rate cut by the Reserve Bank of India (RBI) over the past few quarters, has further helped in improving affordability.
The government’s focus on affordable housing through schemes such as PMAY, lower GST, helped improve demand in affordable housing. With these steps, the foundation for a successful recovery in the sector has now been laid.
This budget, certain additional incentives on both the demand and supply side can catalyse demand revival in the sector. Firstly, an increase in the deduction limit for homebuyers will aid the sector.
The current deduction available on home loan interest paid for self-occupied houses is capped at Rs 2 lakh. Revising it upwards to Rs 4-5 lakhs (given the interest burden for a mid-income apartment of Rs 50-60 lakh is that much) will possibly push the potential buyers to take a step forward in making the purchase decision.
Secondly, the tax exemption for let-out homes did not have any cap earlier but is now limited to Rs 2 lakh. This exemption limit can be revised up or completely removed to boost demand.
On the interest rate side, while a part of the interest rate reduction has been passed on to the consumer and some effect is being observed on ground, further transmission of rates will help in improving affordability.
On the supply side, rationalising GST rates for cement from 28% to 18% would boost infrastructure and housing sector.
Since cement accounts for about a significant part of the construction cost, a 10 percentage point reduction in the tax burden can bring significant relief to the sector.
It will also increase infrastructure spending while reducing the costs of buying a house. The government can provide further impetus to the sector by enabling single-window clearance mechanisms for speedy clearances and faster approvals on the projects.
Additionally, granting infrastructure status can help the sector access funds at lower rates and cut down the cost of capital.
With affordability at all-time high, low interest rate regime and pent-up demand in the mid-income segment, we believe that demand has bottomed out and likely to pick up going forward.
Budget 2020 can provide a much-needed impetus to the housing segment and help revive the buying sentiment in the market.
Source: Businesstoday
