Even as the interim Budget announced various reliefs to individuals and real estate developers to boost the demand for affordable housing, real estate experts feel that no single Budget can ever actually come to the rescue of the industry, which has been under pressure for the last five years due to liquidity crisis, high goods and services tax (GST) rate on under-construction and finished houses and piling up of unsold housing inventory.
On Friday, the interim Budget proposed that the benefit of rollover of capital gains under Section 54 of the Income Tax Act to be increased from investment in one residential house to two residential house for a tax payer having capital gains up to Rs 2 crore. This benefit, however, can be availed once in a lifetime. The government also proposed to extend taxing period of unsold inventories, from one year to two years, from the end of the year in which the project is completed. Finance Minister Piyush Goyal also proposed to extend the period of exemption from levy of tax on notional rent on a second self-occupied house. Currently, income tax on notional rent is payable if one has more than one self-occupied house. The Budget also proposed no tax- deducted at source (TDS) on house rents up to Rs 2.4 lakh from the previous limit of Rs 1.8 lakh. While the real estate sector welcomed the proposals, experts said there are no quick fixes for reviving the sector. “With no notional rent levied on second self-occupied homes and the capital gains up to Rs 2 crore, which can be used for buying up to two houses, provide much needed impetus to the demand for homes,” said Sanjay Dutt, MD and CEO at Tata Realty Limited.
Dutt, however, said India is the second largest startup hub in the world and the government could have extended the special economic zone (SEZ) benefits to boost the commercial real estate business in the country.
“The interim Budget has announced benefits for affordable housing and that is very good. Now the real estate sector needs to sit with the Governor of the RBI and sort out issues pertaining to liquidity crisis facing the sector. The fund requirement for achieving the Prime Minister’s vision of affordable housing for all is much more than what we have currently. Also since the implementation of RERA (Real Estate Regulatory Authority), the fund requirement has significantly increased. There is also the issue of GST rate cut for real estate sector but that is pending with the GST council. If the issues pertaining to liquidity crisis and GST rate on under-construction flats are addressed then the target of affordable housing for all by 2022 can be easily achieved,” said Niranjan Hiranandani, co-founder and managing director of Hiranandani Group. The sector has been demanding a cut in the current GST rate of 12 per cent on under-construction housing units. Lending to the real estate market has also entered a difficult phase with NBFCs facing liquidity crisis. Commercial real estate and housing sectors comprise nearly two-fifths of the total NBFC portfolio.
“There was no major tax relief to the real middle-class. No announcements were made with regards to clearing the NBFC deadlock which continues to hold the sector to ransom. There were promises of reduction on GST burden on homebuyers, but there was no announcement of actual relief,” said Anuj Puri, chairman of Anarock Property Consultants.
Puri, however said the sector will benefit as the Budget has extended the period for taxing unsold inventory. Currently there are more than 6.73 lakh unsold units across the top 7 cities in the country. “Any incumbent government perpetually walks a perpetual tightrope stretched between the expectations of various industries and compelling economic prerogatives. Also, there are always areas for which there are no quick fixes possible at all,” he said.
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