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Budget 2021 expectations: More income tax incentives for housing purchase necessary to revive realty sector

Budget 2021 expectations: More income tax incentives for housing purchase necessary to revive realty sector

Budget 2021 expectations: More income tax incentives for housing purchase necessary to revive realty sector
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By Moneycontrol News Jan 19, 2021 11:09:41 AM IST (Updated)

The affordability of housing projects had been one of the major constraints for demand. Various states had provided time-bound relaxation in stamp duty on housing purchase, which was seen to have a positive impact on sales. The budget could consider further steps to improve affordability.

The contribution of the real estate and construction sector to overall economic activity is significant. It is therefore only appropriate that steps towards spurring recovery in the sector should be among the important budget measures. The COVID-19-related lockdown had caused severe disruption in sales and construction in the real estate sector, including housing. With the easing of restrictions, there has been a strong pick-up in sales and development activities; nonetheless, the housing sector will look forward to additional measures, which can support recovery in demand and remove supply-side challenges faced by developers.

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The affordability of housing projects had been one of the major constraints for demand in recent years. Various states had provided time-bound relaxation in stamp duty and other charges on housing purchase, which was seen to have a positive impact on sales transactions. The budget could consider further steps to improve affordability, including expansion of the current income tax benefits available for home owners, especially first-time buyers. Enhanced income tax sops for income from renting of housing properties and removing taxation on notional rental income can incentivise purchase of new properties while making the housing market more efficient and accessible for prospective tenants. The spending on the flagship scheme of the government for achieving its “Housing for All” target can be further enhanced to improve the access to housing in the low-to-mid income segments of the population.
The recovery in the real estate market post-COVID is expected to be uneven and smaller developers could continue to face significant cash flow challenges and constraints on credit availability. Special financing schemes to ensure need-based credit availability to such projects can ensure that there is no build-up in stalled projects. The government had also set up a special window for last-mile funding for affordable and mid-income projects which are stuck at the advanced stages of development. Along with enhancing the scope of this scheme, income tax benefits specifically targeted at housing loans taken for completed properties could enhance demand for such projects and complement the funding support available under this scheme.
Notwithstanding the various industry-specific amendments to the insolvency resolution laws, the implementation of the bankruptcy process for real estate companies remains challenging. Steps taken to streamline the insolvency process by relooking the role, responsibilities and rights of home buyers in the process, reduce litigations and achieve faster adoption and implementation of resolution plans will be beneficial to both lenders and homebuyers in such stuck projects.
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Since the high cost of land is another major constraint faced by the sector, steps taken by the government to unlock the value of land parcels held by government agencies / PSUs through partnerships with affordable housing developers can be a significant step. Such initiatives can also help the government to improve its revenue generation capability.
The commercial real estate sector has fared better than the residential real estate sector in recent years. Nonetheless, it would face some challenges due to the adverse impact of COVID-19 on incremental demand for office space. Steps taken to enhance India’s positioning as a knowledge and R&D hub for global companies can attract more jobs and generate healthy demand for office space.
Despite concerns about COVID, the sector has seen the successful listing of the second REIT in India and high level of foreign institutional investments. In order to continue attracting investor interest, the sector would be expecting measures for removing taxation related inefficiencies. GST input credit availability for leased properties and reduction in holding period for long-term capital gains taxation for REIT units can further spur investor interest in the sector.
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