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Budget 2022 | Support to real estate sector will positively impact entire economy

While the government has continued to boost the real estate sector, it needs to be recognised as an industry. This will accelerate its growth, and make the sector more organised 

The year 2022 is dubbed as a year of opportunity for the real estate industry. As per estimates, the economy is expected to grow steadily at 8-9 percent, stimulating demand for better infrastructure, and larger homes. Since the real estate sector is expected to contribute 13 percent to India’s GDP by 2025, the upcoming Union Budget is quintessential to discern the sector’s growth trajectory, and determine its larger impact on the national economy.

Amid the emergence of the new COVID-19 variant(s), the housing market remains bullish. We expect to see growing demand, especially for ready-to-move-in homes across the affordable and luxury segments. We are also confident that the strong focus on infrastructure will act as an impetus for the sector’s progress.

In last year’s budget, we witnessed landmark initiatives such as the boost to affordable housing through rate tax deduction on home loans, among other measures such as debt financing for REITs and InvITs, and infrastructure upgrades. The impact of these implementations has provided the sector with a strong foundation that led to the stimulation of affordable housing and the rental housing market. With the government aiming to build 20 million affordable homes in urban areas, we anticipate more sops such as extending rate tax deductions on home loans for another year more.

In addition, new regulations to encourage rental housing, single-window permits, and infrastructure status for the sector are some long-standing requests made by developers across India. We are also hopeful to see more states waive off property taxes, as seen in Maharashtra, for affordable projects under a certain size specification. The industry is also looking forward to revising the definition of affordable housing.

Another important expectation from the government is a reduction in the GST and input tax rates of construction raw materials to 5 percent (from the current 28 percent for cement, 18 percent for iron and steel, and 12 percent for kiln) or an input tax credit. These measures will give the sector a much-required breather without developers increasing property prices to sustain the rising input costs.

We also expect to see a GST waiver for under-construction projects, and are hopeful that the tax rebate on home loan interests can be extended to Rs 5 lakh (instead of the present Rs 2 lakh). The latter would ensure a stronger demand from the housing market, especially in the affordable segment.

The introduction of 5G will boost connectivity and reinvigorate the Smart Cities Mission. It will also lead to the introduction of newer businesses and services such as automated factories, smoother and faster supply chain solutions, and deeper penetration of education technology, impacting the lives of children and adults equally. This will also result in the increased demand for real estate space to set up data centres to support more digitisation. As per a Savills India report, the demand for such areas will touch 15-18 million square feet by 2025. A mechanism could be devised to ensure these services come at nominal costs so that the benefits can be accessed by a larger demographic.

This year has been declared as the International Year of Basic sciences for Sustainable Development by the United Nations. Being a sector that is heavily reliant on raw materials and resources for project completion, government-led incentives could encourage developers to invest in green projects that minimise the use of natural resources such as river sand, and encourage and subsidise the costs of alternatives such as robo sand. The government could also consider concessions for homebuyers to invest in green buildings akin to their policies while introducing electric vehicles.

In conclusion, while the government has continued to boost the real estate sector, we believe it needs to recognise real estate as an industry. This will accelerate its growth, make the sector more organised, and enable developers to avail loans at lower rates from banks and enter the priority sector.

We firmly believe the upcoming budget will give realty and its allied sectors much-needed support and encouragement. It will have a positive trickle-down effect on the entire economy — further paving the way for sustainable development across sectors, and boosting end-user consumption.

Ashish R Puravankara is Managing Director, Puravankara Limited.

Views are personal, and do not represent the stand of this publication.
Ashish Puravankara