Indian real estate industry would employ 75 million people and contribute more than 15% to the country’s GDP by 2030. The sector is set to emerge as the third largest across the world in the coming 10 years.
This can be attributed to the launch of key programmes such as Pradhan Mantri Jan Awaas Yojana (PMJAY), Smart cities project as well as policy reforms including Real Estate Investment Trust (REIT), Real Estate Regulation and Development Act, 2016 (RERA) and increased foreign direct investment(FDI), to name a few. The sector has huge expectations from upcoming budget 2020 in order to sustain its growth trajectory. Let us take a look.
Affordable housing sector was given an industry status way back in the year 2017. However, real estate builders and developers strongly feel that the entire real estate sector should be classified as an industry, something that Budget 2019 missed out on doing. Acknowledging the status of the real estate industry has been the most pressing of all budget expectations, one that could make a significant difference towards the aim of affordable housing for all by 2022, set by the government.
It has been a problem for those in the real estate sector to utilise legal funding by banks and other financial institutions, given the uncertainty of the industry status. Adding to their woes is the cumbersome process of obtaining multiple permits and approvals before a project actually begins. Hence, a single window clearance system remains one of the long awaited budget expectations that would considerably reduce the waiting time of 18 to 36 months taken by developers currently to initiate a new project.
Those who purchase a house can avail deductions on the interest of the loan taken by them. However, the loan needs to have been sanctioned between April 2016 and March 2017 for them to benefit from it. One of the budget expectations of the real estate industry is to extend the timeline upto March 31, 2022. This will boost the demand for housing, which will give a much needed fillip to the sector. Allowing those buying their first home to claim a full deduction on home loan interest, as well as 100 percent benefits on home loan to those renting out their second and third houses, should be the norm. This would help increase buyer sentiment and incentivise investment in the sector.
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When a resident of India, buys a property, he or she needs to pay a stamp duty ranging from 3 to 10 percent, depending on the state in which they reside. Stamp duty lends validity to the transaction from the government, which collects huge revenues by this method. Technically, it makes the government, a partner in every property deal. While the security that comes with stamp duty can’t be denied, higher charges add to the burden when the market is going through an adverse phase. It is important to provide adequate buffers to both home buyers as well as developers by rationalising the cost of stamp duty, in the proposed Budget 2020.
Norms of usage of Input Tax Credit (ITC) on properties under-construction were streamlined in the last Union budget, however, they leave much to be desired. A complete restoration of ITC could not only take away the financial burden of developers, it could also benefit those buying a home, and be a win-win for both, as sales shoot up. Another area of focus in Budget 2020 could be introducing further reforms in Real Estate Investment Trust (REITs), that has already redefined the sector by increasing institutional funding and opening up the cash market. This could lead to developments in infrastructure to boost investor sentiment and channel more foreign investment in the sector going further.
The real estate sector is looking forward to the upcoming budget with a lot of hope and anticipation. Whether it is the implementation of land reforms, reducing land acquisition cost or more liquidity to non-banking financial companies(NBFCs), these are just a few expectations that those in the sector have from the government. It remains to be seen what measures are taken to positively impact the real estate sector that can ease the troubles being faced by property developers and home buyers in the near future.