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Budget 2021 | Real estate needs a fillip to beat the pandemic blues

The real estate sector needs to be accorded the infrastructure status and be included in the priority lending list of banks, irrespective of the segment

Real estate in India contributes close to 6-7 percent of the national gross domestic product (GDP) and this share is expected to grow to 13 percent by 2025. The past year having been a tough one for the industry with the multiple lockdowns and labour shortage, expectations are high on the Union Budget to help revive it.

With the sheer volume of jobs created by the sector and the manner in which it defines the housing infrastructure across cities, real estate needs to be accorded the infrastructure status and be included in the priority lending list of banks, irrespective of the segment. This would enable the industry to benefit from the prevailing low interest rates as well. Currently, only the affordable housing segment gets the benefit of this classification.

The goods and services tax (GST) structure for real estate needs to be streamlined from the present two-tiered system of 1 percent for affordable housing and 5 percent for all others to a uniform rate of 1 percent. Presently a large number of under-construction projects that are at an advanced stage of construction witness low transaction volumes with buyers preferring to wait for completion to save the 5 percent GST, although the price of the housing units may have the GST component factored. Reducing the GST slabs to a uniform 1 percent may increase sales revenues for developers with projects at advanced stages of construction. This could provide the much-required liquidity for a number of cash-strapped developers.

The reintroduction of input tax credit (ITC) for developers to be able to claim GST expenses incurred in construction activities is also expected from this budget. The lowering of GST along with the provision to claim ITC will provide the much-required fillip after a year plagued by COVID-19 related lockdowns and slowdown in construction due to labour shortage.

As per the current definition, the affordable housing segment has a cap of 646 square feet in metro locations and 969 square feet in non-metro locations, with a price cap of Rs 45 lakhs across all locations. With cost of land acquisition and construction being quite high, especially in metro cities, this price cap leaves most areas in some of the top metro cities out of bounds for affordable housing projects. This leaves developers focusing on this segment with no other choice but to look at outskirts of cities, in areas that may not be convenient for the people who seek affordable homes.

The size restrictions on such homes are also unrealistic and do not take into account the needs of the families on a budget. The time is ripe for the removal of the price cap altogether and also to increase the size cap for such homes — this will have more developers interested in the segment and have projects within city limits in the affordable housing category.

The industry has its hopes pinned high on the Union Budget this time more than ever in the past, as a pandemic is a once-in-a-lifetime occurrence and the real estate sector that has been immensely affected by it requires all the support from the budget in its resurgence as India’s prime contributor to GDP and employment.

Vikram Chari is Founder and CEO, SmartOwner. Views are personal.
first published: Jan 15, 2021 08:34 am