Budget 2021 | It’s a mixed bag for the housing sector

Even though there were limited announcements for the housing sector, overall, Budget 2021 was a pragmatic one. Finance Minister Nirmala Sitharaman had very limited elbow room for any big bang announcement given the over looming fiscal deficit.

The key focus remained on the affordable housing sector, in line with the government's goal of 'Housing for All'. The minister made a number of key announcements aimed at reviving the economy, including a sizeable allocation of funds towards infrastructure projects, the launch of a ‘bad bank’ to separate bad assets from good, and key investments in healthcare — this of particular relevance in the wake of the COVID-19 pandemic.

These measures, particularly the ramping up of infra spending, will likely inject much-needed liquidity into the economy, indirectly benefiting most sectors, including housing.

Demand for homes in the affordable segment had increased in the recent past and it was expected that demand for such ready-to-move-in houses will continue to be there.

Significantly, exemption on affordable housing has been extended by an extra year, while the additional Rs 1.5 lakh interest benefit to first-time buyers of homes too has been extended to March 2022. Both these steps are likely to provide added impetus to the recent and encouraging rise in sales of residential units.

Also, the tax exemption for affordable homes will provide a great boost to the rental housing, and will lay out a stronger foundation for built-to-rent asset class. This is likely to increase rental returns, as more greenfield housing projects are expected to be announced, with a focus on leasing. Overall, the focus on this segment will augment investor and real estate developer participation in the housing sector.

In a further boost to the cash-starved real-estate segment, the minister announced relief on TDS for REIT and InvIT investors, alongside other changes in policy. This will make the sector a far more attractive option to investors, while bringing in a welcome infusion of cash. Meanwhile, among other measures offering relief for real estate, customs duty on steel was brought down to 7.5 percent.

Still, for all these steps, there will be disappointment among real-estate players that neither was there any mention of industry status, nor any on input tax-benefit under GST for under-construction properties, both residential and commercial.

On creation of infrastructure, the stress was on long-term debt financing, for which a Bill proposing the setting-up of a development financial institution with a lending portfolio of Rs 20,000 crore was introduced. The institution will augment funds for projects in infrastructure and the housing sector.

Of more pertinence to India in 2021, during a year when the real-estate sector had to factor in the double shock of a lockdown and correction of land prices, the budget provides a dose of much-required optimism and leaves gaps to build for the future.

Alok Saraf is Associate Partner, Grant Thornton Advisory. Views are personal.