Giving a fresh impetus to the ailing real estate sector, Finance Minister Nirmala Sitharaman, in her maiden budget speech, has proposed an additional tax deduction of Rs 1.50 lakh on interest paid on home loans taken before March 2020.
Presenting the first Budget of the second Narendra Modi government, Sitharaman also said the government would adopt measures to promote rental housing in the country. "The current rental laws are archaic as they do not address the relationship between the lessor and the lessee realistically and fairly. A Model Tenancy Law will be finalised and circulated to the states soon," she said.
The finance minister proposed to increase the limit of carpet area from 30 square metres to 60 square metres in metropolitan regions and from 60 square metres to 90 square metres in non-metropolitan regions. The government has set the limit on the cost of an affordable house at Rs 45 lakh in line with its definition under the GST Act.
According to real estate industry representatives, the budget initiatives will benefit the real estate sector substantially and spur economic growth.
Welcoming the incentives offered to the sector, Niranjan Hiranandani, national president of Naredco and senior VP of Assocham, stressed the need to promote rental housing and housing for all by 2022. “The government’s idea to provide affordable housing will be a possibility and is highly successful in almost all the cities except Mumbai where there is a paucity of land. I believe that the additional incentive of Rs 1.5 lakh on interest on loans borrowed under the affordable housing would give a boost to the real estate sector.”
Liquidity has been a major concern for the industry, which the government has tried to address to a certain extent in the budget. “Public sector banks are now proposed to be further provided Rs 17,000 crore of capital to boost credit. Also the economy was devoid of any institution capable of providing long term credit, the government has tried to address that issue as well,” he observed.
Amit Wadhwani, co-founder of SECCPL has also cheered steps to improve liquidity. "The liquidity crisis of NBFCs is given due diligence in this edition of the Budget, with the government allowing FIIs and FPIs to invest in their debt papers alongside a one-time, six-month partial credit of Rs 1 lakh crore to PSBs for the purchase of high-rated NBFC assets. This shall be a positive step in resolving the liquidity crisis faced by NBFCs and will help revive lending activity. It will also ensure the sustained flow of capital for them," he said.
Wadhwani believes that reformation of rental laws, introduction of newer amenities and deductions in home loans for affordable housing will boost NRI investment in the sector.
Farshid Cooper, MD of Spenta Corporation, has also echoed the views of Wadhwani. "Key reforms that will impact the spokes of the real estate sector are NRI portfolio with FPI route, reforming of rental laws, introduction of newer amenities and deduction in home loans for affordable housing segment. We are heading in the right direction for the industry as a whole," he opined.
Industry representatives said 'housing for all by 2022' initiative would become a reality if the government helps the players work towards the goal. The budget proposals are conducive for growth as it attempts to attract NRI investment, boost rental housing, emphasise on major infrastructure projects, ensure job creation and spur economic development.
"The government announced major tax benefits that will help stimulate demand for affordable housing. Interest deduction up to Rs 3.5 lakh for affordable housing (priced at Rs 45 lakh) as against Rs 2 lakh earlier will now be available until March 31, 2020. This can help attract first-time homebuyers. Further, nearly 1.95 crore houses are proposed to be provided to eligible beneficiaries under PMAY-Grameen, while another 19.5 million houses are to be constructed under PMAY-Urban between FY20 to FY22," said Anuj Puri, chairman, Anarock Property Consultants.
On rental housing, he said the FM called out the old rental laws archaic and stated that the government will soon formalise a modern tenancy policy and share it with all states.
However, Parth Mehta, managing director of Paradigm Realty said the Budget 2019 lacked luster as the NBFC crisis resolution was overlooked deeply. "Allowing FIIs and FPIs to invest in debt securities issued by NBFC as well as reinforcing the banks to purchase high-rated pooled assets of financially sound NBFCs amounting to a total of Rs 1 lakh crore, the govt will provide a one-time six-month partial credit guarantee to PSBs for first loss up to 10 percent. This was a silver lining but not a solution to infuse liquidity and bolster credit to consumption finance," he pointed out.
Ramesh Nair, CEO and country head India of JLL, said the budget proposal to introduce a Model Tenancy Law would bring the required institutional framework in the country. The proposed regulation will make the segment more organised and fair for landlords and tenants.
"Under the PMAY scheme, as much as 1.95 crore houses are now proposed to be provided to eligible beneficiaries. Shifting their focus towards rental housing, the current rental laws are also undergoing a change that will prove itself to be fair to the lesser and the lessee. There are multiple initiatives for women that should encourage them to be active homebuyers, expanding the buyer universe and reducing dependency for women, " said Manju Yagnik, vice chairperson of Nahar Group and vice president of NAREDCO Maharashtra.
To encourage NRI investment, the NRI portfolio scheme route is to be merged with foreign portfolio investment route which will drastically improve the cash flow in the economy and boost the luxury housing sector whilst clearing unsold inventories, she added.
“Given that the good part of demand in real estate is now driven by Affordable housing, the deduction of additional 1.5 lakh on the loan amount for affordable housing will trigger more conversions and thereby stimulating further growth and providing land from public sector enterprises for affordable housing will help solve land acquisition problems," said Rajan Bandelkar, president, NAREDCO Maharashtra.
He further said that the proposal to restructure and formulate tenant laws and promote rental housing will be not only added support for the migratory population of the country but also help institutionalise the rental housing allowing higher rental returns.
Ashok Chhajer, chairman and managing director of Arihant Superstructures Ltd, applauded the decision to increase deduction from Rs 2 lakh to Rs 3.5 lakh for affordable housing, which will be available until March 31, 2020. "This would motivate buyers who have been postponing their buying decisions to act and buy now. It will boost affordable housing sector to a new level of growth," he noted.But Surendra Hiranandani, founder and director of House of Hiranandani, thinks there is still a long way to go despite some concrete measures to promote the realty sector. "We hope the government will look into some of the key concerns raised by the industry soon. To bring back growth in the sector which is vital to any developing economy, we expect the government to impart industry status to the sector. It would enable developers to cut capital costs and pass on the benefits to consumers. We were also expecting a single window clearance mechanism, a long pending demand, which was not addressed," he said.