Affordable and rental housing got a major push in Budget 2021 with the government extending the period for extra deduction of Rs 1.5 lakh available for loans up to March 31, 2022, a move expected to boost housing demand amid the ongoing COVID-19 pandemic.
Amid the prolonged pandemic scenario, this extension was needed to support the latent housing demand in the country, experts said.
Infrastructure projects, especially Metro, also received a shot in the arm. This, said real estate experts, will act as a strong catalyst in driving real estate in urban areas.
The budget allocation for the ministry of housing and urban affairs for central sponsored schemes was up by around 17% from Rs 46,790 crore last year to Rs 54,581 crore this year. The allocation for Mass Rapid Transit System (MRTS) and Metro services was 23,500 crore in 2021-2022. The National Capital Region Transport Corporation, which is executing the country's first Regional Rapid Transit System (RRTS) project, has been allocated Rs 4,472 crore as against 2,487 crore in the revised 2020-21 estimates.
“This Government sees ‘Housing for All’ and affordable housing as priority areas. In the July 2019 Budget, I provided an additional deduction of interest, amounting to Rs 1.5 lakh, for loan taken to purchase an affordable house. I propose to extend the eligibility of this deduction by one more year, to 31st March 2022. The additional deduction of Rs 1.5 lakh shall therefore be available for loans taken up till 31st March 2022, for the purchase of an affordable house. Further, to keep up the supply of affordable houses, I propose that affordable housing projects can avail a tax holiday for one more year – till 31st March, 2022,” finance minister Nirmala Sitharaman said in her budget speech.
“This will keep demand buoyant for affordable housing in 2021 as well. Further, the extension of the tax holiday for affordable housing projects for one more year will help bring in more new supply within this segment. As per ANAROCK Research, affordable housing already accounts for more than 35% of the supply across the top 7 cities in the country,” said Anuj Puri, Chairman - ANAROCK Property Consultants.
Experts said that while the government has not announced any significant fresh policies pertaining to real estate, its commitment towards boosting affordable housing remains intact.
“The Budget has extended the benefit of additional interest deduction on home loans for first-time homebuyers in the affordable segment. Further, there is a time extension to claim the tax holiday on profits from affordable housing projects until March 2022. The government continues to promote affordable rental housing schemes by providing tax exemption for notified rental housing projects. This will accelerate the pace of investments in this scheme and is likely to fall in line with achieving the overall objective of Housing for All,” added Samantak Das, Chief Economist and Head of Research, JLL India.
“Similarly, tax exemption for notified affordable housing for migrant workers, and the deduction on payment of interest for affordable housing being extended by a year will give a fillip to this emerging segment. As affordable housing attracts only 1% GST and Rs 1,000 stamp duty in the state of Maharashtra will augment the production of affordable housing in the state,” said Niranjan Hiranandani, National President NAREDCO.
However, there were no specific announcements to boost the ailing real estate sector.
“The sector needs to be nurtured in toto for its contribution to GDP specifically, but more importantly, for being a necessary input in all economic activities,” said Sankey Prasad, FRICS, Chairman & MD (India), Colliers International.
The real estate sector’s long standing demand for expanding the definition of affordable housing was not addressed.
“The support announced for rental housing too will go a long way in boosting the real estate market and will ease a lot of pressure points in the rental home market. This will also help migrant workers to a great extent and will support them in remaining in metros and other big cities during times of financial hardships such as the one presented by the COVID-19 pandemic. However, the long-standing demand of the real estate industry to expand the definition of affordable housing so as to include homes priced more than Rs 45 lakhs in big metro cities, has sadly not been addressed,” said Dhruv Agarwala, Group CEO, Housing.com, Makaan.com and Proptiger.com
“However, if long standing demands of the sector like granting industry status, rationalising the GST rates (by allowing the input tax credit), access to funds and ensuring longer repayment cycles, lowering tax on raw materials, and increasing Rs. 2 Lakh tax rebate on housing loan interest rates to at least Rs. 5 Lakh could have been taken - it would have gone a long way to support the real estate developers and generate healthier housing demand. This would have had a lasting positive ripple effect on the national economy,” said J C Sharma, Vice Chairman & Managing Director SOBHA Ltd.
Infrastructure receives major push.
Infra works proposed include building 8,500-km of highways by March 2022. There were big infra sops announced for poll-bound states including West Bengal, Tamil Nadu, Kerala and Assam. The government also announced the Bill to set up Development Finance Institution (DFI) providing Rs 20,000 crore to boost infrastructure projects.
“A total of 702 km of conventional metro is operational and another 1,016 km of metro and RRTS is under construction in 27 cities. Two new technologies i.e., ‘MetroLite’ and ‘MetroNeo’ will be deployed to provide metro rail systems at much lesser cost with same experience, convenience and safety in Tier-2 cities and peripheral areas of Tier-1 cities,” the FM said.
Central counterpart funding will be provided to: a. Kochi Metro Railway Phase-II of 11.5 km at a cost of Rs 1957.05 crores. b. Chennai Metro Railway Phase-II of 118.9 km at a cost of Rs 63,246 crores. c. Bengaluru Metro Railway Project Phase 2A and 2B of 58.19 km at a cost of Rs 14,788 crores. d. Nagpur Metro Rail Project Phase-II and Nashik Metro at a cost of Rs 5,976 crores and Rs 2,092 crores respectively.
“Central sponsorships of metro projects in key urban areas among other infrastructure initiatives, are likely to bolster the real estate potential of specific micromarkets in these cities,” said Anurag Mathur, CEO, Savills India.
Debt financing of InVITs and Reits to be enabled
Finance minister also said that debt financing of InVITs and REITs will be enabled by making a suitable amendment to attract more investment in the real estate and infrastructure sectors.
“This will further ease access of finance to InvITS and REITs thus augmenting funds for infrastructure and real estate sectors, she added. In order to provide ease of compliance, the finance minister proposed to make dividend payment to REIT and InvIT exempt from tax deducted at source (TDS),” the finance minister said.
While a REIT comprises a portfolio of commercial real assets, a major portion of which are already leased out, InvIT comprises a portfolio of infrastructure assets such as highways, power transmission assets.
“Giving flexibility to REITs to raise more debt capital will attract more investment in the real estate sector and will lead to faster closure of transactions,” said Prashant Solomon, MD, Chintels India and Hon. Treasurer- CREDAI NCR.
The relaxation on tax compliance for REIT investors will further improve the marketability of such products considering we are likely to witness new REITs this year, said Shishir Baijal, Chairman and Managing Director, Knight Frank India.
This can be a gamechanger for the fundraising requirements of these entities and thereby enable greater transaction in completed brownfield projects, said Ashoo Gupta, Partner, Shardul Amarchand Mangaldas & Co.
Monetisation of government’s surplus land
The announced monetisation of surplus land of government and government bodies has also been welcomed by the sector. However, the implementation will need to be monitored, said Das.
Swachh Bharat Mission 2.0 unveiled
The finance minister also announced an allocation of Rs 1,41,678 crore for Urban Swachh Bharat Mission 2.0. The announcement was made as part of the government's plan to strengthen preventive health infrastructure. The allocated amount is an outlay for the next five years, beginning from financial year 2021-22.
“For further swachhta of urban India, we intend to focus on complete faecal sludge management and waste water treatment, source segregation of garbage, reduction in single-use plastic, reduction in air pollution by effectively managing waste from construction-and-demolition activities and bio-remediation of all legacy dump sites. The Urban Swachh Bharat Mission 2.0 will be implemented with a total financial allocation of Rs 1,41,678 crores over a period of 5 years from 2021-2026,” the minister said.
Amrut and Smart Cities mission received an allocation (central schemes) of Rs 13,750 crore compared to Rs 9850 crore which is an almost 40% increase.