As I was watching the leading voices of Indian real estate share their wish list for the housing sector ahead of the Union Budget 2022, a homebuyer had an interesting discussion with me. The buyer, with limited understanding of the Union budget and the difference between fiscal policy and monetary policy, happened to highlight some pain points of the housing market that do not form part of the industry narrative.
He wanted to know whether industry demands such as income-tax exemption or long-term capital gain tax that are supposedly meant for homebuyers, are in sync with post-Covid-19 realities. Aren’t these meant for those who are already privileged and in a position to buy a house or two?
I assured the homebuyer that there seems to be a shift in the industry budget expectations this time around. The developers seem to have become a little more realistic and as a result, demands such as industry status, single-window clearance, ease of project finance, etc., are not as loud as the demand for an increase in the limit of tax deduction for homebuyers. The demand this time around is that this limit for home loan borrowers should be increased to Rs 5 lakh for homebuyers. The developers also want a review in the definition of affordable housing, lower long-term capital gains tax to encourage more investment, and fresh provisioning for rental housing schemes.
The buyer confronted me with another question - how can an average salaried class person make up his mind to buy a house in today’s uncertain job market? Honestly, I had no straight answer. The experience of many home buyers post Covid-19 suggests that this indeed is the key issue today. A number of distress sales in the secondary market following job losses and salary cuts has made the end-user buyers apprehensive.
Industry data of fast recovery and record home sales conceals more than it reveals. The rosy outlook fails to address the fact that this is a K-shaped recovery where a handful of large developers with sound financials have grown at the cost of the other developers. More importantly, the sales registration data doesn’t differentiate between primary market sale and distress sale in the secondary market.
The critical issue today is how the Union Budget 2022-23 can fix this uncertainty that plagues homebuyers. Exemption of income tax limit to Rs 5 lakh or GST and stamp duty incentives are only going to attract a small number of well-to-do buyers who are immune to prolonged spells of slowdown or recession. Also, incentives such as lower rate of interest, capital gains tax work only in a growing economy.
Job growth, or rather lack of it, has to be addressed in the upcoming budget, especially if the intention is to revitalise the housing market. In an uncertain job market, buyers are looking for some sort of sovereign guarantee against future financial uncertainties.
The two critical issues that most homebuyers want the budget to accommodate are a safety valve against job losses and salary cuts. If only the budget were to propose deferment of home loan repayment in the wake of job losses and EMI restructuring in the wake of salary cuts, it would truly be called a homebuyers’ budget.
Loan deferment and restructuring would not only help the existing home buyers in distress but also act as a cushioning and sentiment booster for prospective homebuyers. This could serve well for the industry as well, since distress sales in the secondary market can impact primary market inventory as well.
Subvention schemes proved to be counter-productive for the housing market in general and the homebuyers in particular. Now that the builders are asking for the restoration of the same in their budget expectations, homebuyers should be wary. However, there are some buyers who feel that it may encourage them to buy under-construction property if there is a mechanism to penalise the builders and not buyers in the event of non-delivery.
Also, with the sector reeling under liquidity issues, homebuyers prefer ready-to-move-in properties. But not too many developers have the financial wherewithal to go in for the build-and-sell model. GST on under-construction property is proving to be counter-productive for the financial viability of some projects. If the chargeable GST is reversed, it could pave the way for some concessions for buying under-construction property. Buyers are no longer keen to invest in under construction units also because prices have remained stagnant for several years.
Also read: Ready-to-move home or under-construction housing project: Which is better?
Homebuyers also want a separate section under Income Tax 80C for the deduction of Rs 1.5 lakh from home loan principal repayments. Most middle-class taxpayers exhaust the rebate on investments like PF, PPF and life insurance, limiting their eligibility to claim tax benefits on loan principal payments.
Amidst all the expectations with regard to Budget 2022, one fundamental concern of homebuyers is whether it would address the issue of job insecurity. Will it at least give them elbow room to avoid future distress sales and huge financial losses?
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
