Shishir Baijal
The residential real estate segment has been in the midst of a downturn since 2012 when unaffordable prices and endemic credibility issues of developers caused a steady decline in demand. The Union Budget of 2020 was expected to introduce significant measures to boost homebuyer demand, but it falls well short of the same.
Affordability remains the largest factor impeding the homebuyer.
Measures such as providing a separate annual deduction of Rs 1,50,000 for principal repayment and relaxing the eligibility criteria for availing benefits under the Credit Linked Subsidy Scheme were would have served the purpose well. However, the Budget fell short of industry expectations, with no major announcement for accelerating growth. Lowering of income tax rates with removal of exemptions, may provide limited boost to consumption.
The removal of exemptions under the new income tax regime, implying no tax benefit on principal and interest for home loans would be a dampener for the sector. The extension of benefit for affordable housing for the developers as well as home buyers by one year is a step in the right direction. As far as the funding constraint for the real estate sector is concerned, the government spoke about enhancing the partial credit guarantee scheme for NBFCs, which again may not suffice for the ailing real estate sector.
The one year extension on the deadlines for homebuyers availing interest deduction benefit of Rs 3.5 lakh on home loan for affordable housing and for developers to register affordable housing projects should incentivise further development and sales traction in the affordable housing space. The budget also attempts to align the circle rates (ready reckoner or rateable values) to the decreasing real estate prices and provide relief to the sector by increasing the extent to which the agreement or consideration value can lag the circle rate from the earlier 5 prcent to 10 percent.
The Rs 1.7 trillion investment in transport infrastructure and the intention to build 100 additional airports under the UDAN scheme will open up new real estate markets and improve the liveability quotient of existing markets but do not directly address the existential concerns faced by the sector today.
The last three years have seen monumental changes in the real estate business. Regulations imposed by the government to ensure accountability on the developer such as the Real Estate (Regulations and Development) Act, 2016 (RERA), Goods and Services Tax Act (GST) and the Benami Transactions (Prohibition) Amendment Act, 2016 have played their part in stemming the decline in demand, but sales level is still a far cry from the high of 2011.
The mounting financial pressure on developers due to declining sales and increasing unsold inventory levels were further accentuated by the NBFC crisis that left them fighting for survival. The creation of the Rs 25,000 crore Alternative Investment Fund to finance the last mile funding requirements of under construction projects is helping to some extent but its impact is limited compared to the overall requirement of the real estate sector.
With priority accorded to projects very close to completion, this fund will only be able to address the requirements of a small portion of the total requirement. Despite the massive need for housing in India, unsold inventory levels in just the 8 cities of Mumbai, Bengaluru, NCR, Pune, Hyderabad, Chennai, Kolkata and Ahmedabad stand at a substantial 0.5 mn units. In the given scenario, the real estate sector was expecting stronger supportive measures from the budget.
(The author is Chairman & Managing Director, Knight Frank India)
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