Budget 2022: 4 key reforms real estate industry expects from govt

The Union Budget 2022 is expected to be one of the most watchful events in recent history, which will help the Indian economy to get back on a growth trajectory. As the economy is grappling with a once-in-a-century crisis, the industry is pegging high hopes on the government's outlays and expecting 'never before' schemes. 
  
As the rude shocks from the COVID-19 pandemic have been felt across global economies, Indian real estate has been impacted in different ways, varying from location to asset class. The budget stimulus will pave the path for the sector to survive and thrive beyond the COVID era. The collaborative working of individuals, organisations, institutions and government corridors have to be sewed together to mitigate future challenges and build resiliency. 
  
Budget outlays are expected to be on the outlines of rethinking the work, workforce, and workplaces, as the pandemic has disrupted the way we live and work forever. 

Also Read: Budget Expectations: Real estate sector seeks relaxation in taxes  

Some noteworthy recommendations are driven by the parameters that adhere towards ramping up investments, boosting consumption, financing growth, enhancing competitive edge, strengthening business communities, fostering technology & innovation, augmenting employment and promoting sustainability in the sector. 
  
The key recommendations by the industry body are in sync with the demand from the homebuyers, developers, and investor community. 

Income Tax reforms

• Individual tax should be reduced to 25 % from 42 %.
• Interest on home loans tax deduction should be extended up to Rs 5 lakh to benefit home buyers. 
• Long term capital gain from the sale of house property should be taxed at 10 % and the period of holding the house property should be reduced to 12 months from the existing 24/36 months to qualify the same as Long Term Capital Asset. 
• Eliminate the dual taxation burden on buyer and seller with difference in ready reckoner\circle rate and market price in excess of 25% under Sec 43 C A. 

Affordable housing reforms

• Expand the ceiling of Rs 45 lakh on affordable housing in metro cities up to Rs 1 crore to include home buyers as financial beneficiaries. 
• Extend the financial benefit of the PMAY & CLSS scheme to the mid-income group (MIG) to encourage housing consumption. 
• Amend Sec 80 IB A to extend affordable housing development benefits to all the projects registered in RERA between 1st June 2016 to 31st March 2023. 

Rental housing reforms

• Increase standard deduction to 50% from 30% as this will result in earning a better rental yield in residential real estate i.e. up to 6%-7%.
• Tax on 'Notional Income' from house property held as stock in trade - Section 23(5) - needs to be removed to create excess rental stock. 
• Rental Income for the first five years from the date of completion should not be taxed to incentivise 'buy to rent' trend, government to notify the same. 
• Allow accelerated depreciation at 10% to induce companies to build service rental apartments.
• Enhancement in HRA tax exemption on employee's salary will encourage an uptick in rental housing across geographies.

Also Read: Budget 2022: What real estate sector, homebuyers expect from FM Sitharaman

Liquidity reforms

• Grant long pending Industry status to avail long and low-cost finance. 
• Enhance Quantum of SWAMIH like Stress Fund to refinance stalled projects up to Rs 1,25,000 crore from the current Rs 25,000 crore. Sanction setting up of more such stress funds with other banks and institutions. 
• Permit External Commercial Borrowings (ECB) for real estate to avail cheap credit. 
• Reintroduce Subvention Scheme to benefit homebuyers, as it is difficult for buyers to shell out EMI and rent at the same time. 

There are dramatic shifts underway as to how the sector will function in a new normal with changes happening at an accelerated pace. Economic activities are rolling over at a slower pace with the priority of containing the spread of the pandemic, which have broad implications on the real estate sector too. 

Aggressive fiscal measures, industry SOPs combined with critical containment actions will ensure that the financing stream remains fluid and the outlook for growth gets stronger. 
  
The annual budget offering should lay a clear focus on stimulating the demand and supply measures by tax rationalisation, attracting investment by conducive policy framework, incentivising industry to amplify production and leaving end-users with more disposable income to boost the consumption economy. 

The government should turn their attention towards bolstering the labour intensive real estate industry which has the potential to contribute nearly 15% of GDP growth, inclusive of employment generation. 
  
As the demand curve for homeownership is epochal post the COVID menace, powering this demand will be a discreet shift. It is a pivotal opportunity for both the government and the Industry to profoundly build the demand with the means of affordability and sustainability. 

The budget needs to address the demand for emerging asset classes like warehousing, logistics, cold chain, data centres with a national policy framework. 

The rising GDP will continue to lure investment influx into commercial real estate which will spring back in FY23 at a better pace. Commercial realty players are keeping a close watch on the new trends like changing world of work, office design reset, cost-efficacy, and striking a fine balance towards ESG goals. 

A shifting landscape for offices will now be driven by user experience and the upcoming budget is expected to do its magic in reviving this asset class too. 
  
(The author is a Vice-Chairman National- NAREDCO, and MD Hiranandani Group.)