Until 2021, the real estate sector was one of the hardest hit sectors in the country due to the adversities encountered during the lockdown imposed during the pandemic. Over the past year, the housing market has seen a steady recovery from the pandemic-induced plunge, with the residential sector outperforming other sectors despite pandemic-related constraints. However, with the threat of the new COVID variant Omicron, the real estate market recovery could experience a setback and experience a downturn again. As the COVID situation remains unstable, the real estate sector expects some relaxations and exemptions to be announced by the Union Budget 2022, to ease the burden the sector is facing and foresees. The expectation for the coming year is that the effect of the new variant is adequately mitigated and contained so that the real estate sector recovers and reaches pre-COVID levels. Market leaders hope that the Union Budget 2022 will help and support this expectation and give impetus and incentives to developers to enable the growth of the real estate sector.
Although the government has granted some easing to the property sector in the 2021 Union Budget, there are still concerns that need to be addressed in the 2022 Union Budget as the lockdown and restrictions have again been imposed in various states and there is looming uncertainty in the markets.
EU budget expectations for 2022
At a time when the country anticipates another threat from the Omicron virus outbreak which is expected to peak in February, the property sector is eagerly awaiting much-needed reforms and incentives in the upcoming budget, especially as the sector is the main contributor to economic growth. Some expectations of the 2022 Union budget, with regard to the real estate sector, can be summarized as follows:
- A reduction in the Goods and Services Tax (GST) on raw materials for the construction industry such as cement, steel, etc. This would indirectly benefit the real estate sector, as it would help reduce input costs for developers and eventually reduce the overall cost of construction. . Commodity prices in general are rising and a reduction in GST rates would provide some relief to developers.
- An increase in the homebuyers’ interest deduction for tax refund under Section 24(B) of the Income Tax Act 1961 to provide flexibility to homebuyers and boost overall home buying sentiment as another wave begins in the country. The current ceiling being INR 2 lakhs as the limit for deducting interest on home loans for tax refund, if increased to INR 5 lakhs, will significantly benefit the property market by providing more liquidity to taxpayers and speeding up the purchasing power of homebuyers.
- A review of the definition of affordable housing should be considered by the government for this budget. The current ceiling value for affordable houses is capped at INR 45 lakhs. We expect this limit to be increased to INR 75 lakhs in non-metro cities and INR 1.50 crore in metro cities. Also, another suggestion is to increase the size of these affordable houses by 60 sqm. to 90 m². in metropolitan areas and from 90 m². to 120 m². in non-metropolitan cities.
- The government may consider extending the Credit Linked Subsidy Scheme (CLSS) under the Pradhan Mantri Awas Yojana (PMAY) for Middle Income Groups (MIGs) until 31 December 2022. Estate agents s ‘expect this increase in the schedule to help by using the funds allocated under the program.
In addition, some other expectations of the 2022 Union budget are a drop in long-term capital gains tax, the introduction of rental housing tax relief would provide a much-needed boost rental housing, incentives for private investment, a one-stop customs clearance mechanism. Market participants and industry representatives have also suggested the government allow tax-neutral consolidation of businesses through mergers for stalled housing projects.
Some expectations of stakeholders in the real estate sector which were not met in the previous Union budget of 2021 and which are expected to be met in the Union budget of 2022 are:
1. The availability of an input tax credit for developers would be a welcome change. Although input tax credit is not allowed at the time of construction against GST paid on rent and other income of the property upon completion, industry seeks offset for GST paid on materials entrants during the construction phase. The industry currently views the lack of input credit as a double tax levy on commercial real estate developers who own assets that rely on leasing or renting.
2. Obtaining the status of “infrastructure” or “industry” is one of the long-standing demands of the real estate sector. Currently, the same has been conferred only on affordable housing, which enables it to enjoy benefits such as cheaper credit facilities from financial institutions, tax breaks and increased flow of foreign and private capital. It is recommended that giving industry status to the real estate sector as a whole, including vacation homes, helps developers gain various similar benefits, such as lower cost fundraising, being included in the list of priority loans from banks. It will help in fundraising for projects of various schemes. Along with this, the state of infrastructure will bring a number of fiscal benefits to the sector and could also lead to an increase in overall demand.
It is important that the government takes into account these suggestions and expectations of the real estate sector in the next Union budget of 2022 and introduces the appropriate reforms to accelerate the much needed growth of the real estate market and allow a faster economic recovery.
Mrinal Kumar, Partner, Shardul Amarchand Mangaldas and Co.
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