10 things the real estate sector is looking forward to from Budget 2023

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With just a day to go for Finance Minister Nirmala Sitharaman to present Budget 2023, here’s a list of expectations from homebuyers and real estate developers.

1. Increase deduction on interest paid on home loan

To keep inflation under check, the repo rate has been hiked by the Reserve Bank of India (RBI) by more than 200 basis points (bps) in 2022. This has significantly impacted affordability of the real estate. The current limit of Rs 2 lakh as deduction for interest paid on a home loan for self-occupied property needs to be reviewed and increased to at least Rs 5 lakh in view of inflation and higher interest rates. The last increase in the deduction limit under Section 80C (to Rs 1.5 lakh a year) was made in 2014. An increase could act as a catalyst for housing demand. As for the repayment of the principal portion, the existing deduction, capped at Rs 1.5 lakh and comprising multiple investments (Provident Fund, Term Deposits), needs to be significantly increased.

2. Bring  taxability of gain on sale of property at par with listed shares

Currently, gain on property held for more than two years prior to the date of sale is considered long-term and is taxable at the rate of 20 percent. However, in the case of sale of listed shares, the prescribed holding period for long-term capital gains is one year, and the applicable tax rate is 10 percent. The government should consider providing relief to sellers by bringing taxability of gains on the sale of property at par with those of listed shares.

3. Limit on capital gains on sale of property up to Rs 2 crore must be relaxed

Capital gains on the sale of property of up to Rs 2 crore invested in buying two properties is exempt from taxation. However, in case the capital gain exceeds Rs 2 crore, the investment must be made in only one property to claim exemption. In light of the increasing property rates, especially in Tier 1 and 2 cities, these limits of Rs 2 crore and two properties must be relaxed and exemption provided for investment in three properties, irrespective of the amount of capital gains. In addition to providing relief to sellers, this measure will also lead to the development of the resale market.

4.  Infrastructure status to real estate sector

Infrastructure status should be provided to the real estate sector to facilitate long-term funding for large-scale projects. This will also help avail long-term cheap credit to deliver affordable projects. ANAROCK's Consumer Sentiment Survey has found that in 2022, demand for affordable housing fell precariously. In 2018, approximately 39 percent property seekers in the top seven Indian cities were keen on affordable homes priced within Rs 40 lakh. This demand shrunk to its lowest levels in 2022, with just 26 percent property seekers looking to buy in this budget segment. This requires a boost.

5. Extend Credit-Linked Subsidy Scheme (CLSS) until 2027

To incentivise homebuyers, the Credit-Linked Subsidy Scheme (CLSS) should be extended as it has been a major motivator with 2.54 million beneficiaries. Under CLSS, beneficiaries of the economically weaker section (EWS), lower income group (LIG) and middle income group (MIG) can seek housing loans from banks and other financial institutions at subsidised interest rates. CLSS for the MIG class was announced by Prime Minister Narendra Modi on December 31, 2016. It was initially launched for 12 months until December 2017, and later extended till 2022. It has been granted a two-year extension till 2024.

6. Revise price cap of affordable housing

In metropolitan cities, affordable housing is classified as a dwelling unit with a price ceiling of Rs 45 lakh and a carpet area of 60 square metres (645.8 square feet) or less. While the price band works for tier 2 and 3 cities, it cannot be applied to metro cities due to higher land prices and construction costs. The ceiling of Rs 45 lakh is very low in a place like Mumbai and developers find it hard to deliver homes within this price cap. The Budget would do well to adjust the qualifying price band based in cities. Mumbai can have a band of Rs 80-85 lakh and for other metro cities it can be raised to Rs 60-65 lakh. The affordable housing segment was also affected by the pandemic because developers reduced their activity as the intended customer segment was economically impacted the most on account of high interest rates.

7. Increase the size of SWAMIH Fund to Rs 50,000 crore

Despite the recent capital infusion of Rs 5,000 crore, the overall size of the Special Window for Completion of Affordable and Mid-Income Housing Projects (SWAMIH) fund — set up under the Special Window for Affordable and Mid-Income Housing — should be raised to Rs 50,000 crore to improve the housing market and ensure more stuck projects are completed.

8. Provide tax holiday for rental housing

Rental housing is important for people who migrate to cities for work. The government announced the Affordable Rental Housing Complex (ARHC) scheme in 2020, aimed at providing accommodation to the urban poor and migrant worker communities. If rental housing is to be lucrative for real estate developers, it has to come with incentives. To invite private participation in this initiative, the government had rolled out incentives such as 50 percent additional FAR/FSI, concessional loans at priority sector lending rate, and tax reliefs at par with affordable housing with a view to develop ARHCs on developer-owned vacant land for 25 years. However, the low yields of affordable rental housing proved to be a major deterrent. Despite funding for such projects being provided at concessional rates, most players find it unviable to develop ARHCs on already scarce land procured at steep prices in major cities. The Budget is an opportunity to introduce more deal sweetening measures to give a push to ARHCs.

The developers would also want GST benefits for these projects. This would incentivise them to get into this area and undertake housing projects in this segment. The real estate sector has also recommended an increase in standard deduction in rental housing of up to 50 percent, and incentives for serviced rental apartments by allowing accelerated depreciation.

9. Incentivise homebuyers for buying into RERA-registered projects

This will encourage them to buy only real estate projects that are registered with RERA, and thus, bring more builders under the ambit of the regulator. All legacy projects (pre-RERA) that have been delayed for more than a decade need to be identified, and the government should introduce a scheme to give relief for such buyers and to ensure that these projects are completed.

10. Create competition fund to give a boost to urban reforms

There is a need to reduce dependence of municipal bodies on state governments and make them financially self-sufficient. A competition fund could be created to incentivise urban local bodies and allow states to dip into the fund if they achieve certain benchmarks. The government should also provide incentives to the private sector to develop zero-waste residential complexes.