Budget 2022: Real estate issues that it failed to address 

Real estate developers had been counting on Budget 2022 to address pressing issues confronting the property sector and to incentivise homebuyers to finally take the plunge.

But there was neither an increase in the income tax exemption limit on home loans nor was the affordable housing price cap raised in the Budget presented on February 1. Rental housing also did not figure in Budget 2022.

The only real estate touch point was the government’s focus on the creation of 8 million affordable housing units by 2023 and allocation of Rs 48,000 crore towards the PM Awas Yojana.

Gati Shakti Cargo Terminals may spur demand for logistics and warehousing.

Tracking sentiment is not easy when it comes to the real estate sector because there is no predictive model that can assess the sentiment of both developers and buyers.

Questions defining sentiment 

Some questions that remain unanswered in the Budget that define sentiment are:

How will the budget fuel housing demand?

Why was income tax exemption limit not raised?

Has the budget addressed the fiscal challenges of  developers?

Has the budget incentivized homebuyers?

Has the budget addressed job insecurity issues of prospective homebuyers?

Why was the budget silent on the rental housing policy?

Why didn’t the budget define the proposed roadmap for Special Economic Zone legislation?

Why has there been no Goods and Services Tax (GST) reform to spur under-construction houses

Would redefining the limit of affordable housing lead to more demand?

What is the tangible benefit for affordable housing developers?

Realty indices 

With Budget 2022 skirting such issues, all eyes were on the stock market to see its impact on the Realty Index.

The Realty Index opened on a positive note ahead of the budget speech but later remained flat. The budget announcements did not cheer investors in the Realty Index on a day the BSE Sensex added 848.40 (1.46 percent) points and Nifty 50 added 237.0 (1.37 percent) points.

In contrast, the Nifty Realty Index that opened at 486.15 closed at 488.65 points. Similarly, the BSE Realty Index that opened at 3,853.19 points closed at 3,877.85 points.

Of course, the leading stocks in the sector that were beneficiaries of the K-shaped recovery in the sector gained marginally, with DLF being the biggest gainer at Rs 16.60 (4.25 percent) and Prestige being the loser at Rs 2.0 (0.41 percent). None of the realty stocks could drive the stock market.

Some analysts pointed out that while the government’s focus remains on promoting affordable housing, mid- and high-income housing continue to be adversely impacted by high taxes, both direct and indirect.

There is absolutely no incentive to buy an under-construction project today, with capital appreciation being in negative territory for the past few years.

The effective 12 percent GST to be paid by homebuyers dampens the sales velocity of housing projects. The fact is that if GST is added to the additional Stamp Duty of 5-6 percent payable to state governments as well as other high premiums payable for development in cities such as Mumbai and the National Capital Region, the government indirectly ends up becoming a significant economic partner in the project (33-40 percent) without any investment.

While the Budget did talk about creating mega cities and developing Tier II and III towns, there’s no clarity as to how the proposed cities would manage employment and affordability issues. How would these cities attract investments and create jobs.

All in all, it is a disappointing budget for the real estate sector.