Budget 2024: Higher home loan deduction limit, industry status on real estate sector’s wish list

Although FM Nirmala Sitharaman has said there would be no spectacular announcements in the interim Budget, real estate stakeholders are optimistic that some of their demands will be met.

Real estate companies are hoping finance minister Nirmala Sitharaman will consider their key longstanding demands for higher home loan deduction limits, a revised definition of affordable housing, and industry status for the sector in the upcoming budget.

Although the finance minister will present a vote-on-account or interim budget on February 1 and has said there are unlikely to be "spectacular announcements," real estate stakeholders are optimistic some of their demands will be met.

Deductions against home loan interest

A key expectation is an increase in the deduction limit for home loan interest payments under Section 24B, which has remained unchanged at Rs 2 lakh annually since 2014.

“One key expectation is to elevate the current Rs 2 lakh tax rebate on housing loan interest… to a minimum of Rs 5 lakh. This adjustment is crucial to bolster housing demand, especially within the affordable housing segment,” said Piyush Bothra, co-founder of Square Yards.

The rationale for this demand is the increase in property prices that has led homebuyers to borrow higher amounts.

“In response to the recent escalation in realty prices, we propose an increase in the tax rebate on home loan interest... Raising the current limit from Rs 2 lakh to Rs 4 lakh could be a game-changer, helping to sustain the current strength in demand,” said Dhruv Agarwala, group CEO of Housing.com, Proptiger.com and Makaan.com.

Also read: Income-tax deductions on home loans made easy

Affordable housing caps in metros

Affordability remains a significant issue in home buying. Many government schemes that aided homebuyers in the affordable segment have ended. Experts suggested that the government consider announcing or reintroducing incentives to rejuvenate this crucial segment.

ANAROCK Research found that sales in the much-touted budget category fell to about 20 percent in 2023 from over 30 percent in 2022 and almost 40 percent before the pandemic. The percentage of housing supply in this segment in the top seven cities fell to 18 percent in 2023 from about 40 percent in 2019.

“Several interest stimulants that were offered to developers and consumers in this market over the years have expired in the last one to two years. It is imperative to revive and extend significant benefits such as tax breaks to encourage developers to construct more affordable housing and to make it possible for customers to acquire such homes,” said Anuj Puri, chairman of ANAROCK Group.

In addition, there is a demand to update the definition of affordable housing to align it with current market dynamics.

Vimal Nadar, senior director of research at Colliers India, echoed the thought, saying, “Standardisation of affordable housing definitions across government and financial institutions will help buyers avail maximum available benefits, including credit-linked subsidies.”

Experts said a blanket price cap across the country to qualify as affordable housing is not appropriate.

“A budget of Rs 45 lakh is irrelevant for a metropolis like Mumbai; it should be increased to at least Rs 85 lakh. The budget should be raised to at least Rs 60–65 lakh for other large cities. With this price adjustment, more homes will be within the reach of more buyers, who will be able to take advantage of other benefits such as government subsidies and reduced GST rates at 1% without input tax credit,” said Puri.

Bothra said the threshold for affordable housing, especially in cities such as Mumbai, should be raised to Rs 75 lakh or more.

Industry status

A longstanding demand from supply-side stakeholders has been the grant of industry status to the real estate sector, which would simplify processes for developers and offer other advantages.

“It's essential to adopt a comprehensive approach that extends beyond promoting affordable housing to also addressing fundamental challenges. This includes granting industry status and implementing a streamlined single-window clearance system,” said Agarwala.

Streamlining capital gains tax

Capital gains tax is another issue that needs rationalisation.

“A reduction in the prevailing 20 percent capital gains tax is recommended. This move will incentivise investments, subsequently fostering increased economic growth and stability,” said Bothra.

At present, tax rates on capital gains differ, depending on the type of capital asset.

“The retail investor wishes for further simplification in the capital gains structure,” said Nadar.

Also read: Can REITs replace physical real estate in your investment portfolio?

Promoting REITs and InvITs

Real estate investment trusts (REITs) offer a viable avenue for investing in real estate with a smaller capital outlay. However, this avenue is relatively underutilised by retail investors.

Experts said favourable tax measures could incentivise greater investments in REITs and infrastructure investment trusts (InvITs).

“The Union Budget can also consider measures aimed at increasing retail participation in REITs and InvITs. A comprehensive framework on fractional real estate assets will help in protecting the interests of retail investors and provide a fillip to increasing investments in real estate derivatives,” said Nadar.