There were quite a lot of expectations from Budget 2021 for the real estate sector. 2020’s extended COVID-19 lockdown and subsequent restrictions on movement of people as well as specific protocols put a lot of pressure on this sector. However, despite this the sector registered a good recovery in the second half of the year, particularly in the fourth quarter. A lot of pent up demand was met and unsold inventory has been reduced to such an extent that developers are now planning new launches across cities to meet the growing demand. In such an environment, it is no surprise that many in this industry expected a number of sops which would further boost real estate. Here are some of the minimal gains from Budget 2021 for the real estate industry:
The affordable housing sector received a number of sops. The government has extended by one more year the period during which one can avail deduction of interest amount up to Rs. 1.5 lakh on home loans taken for purchasing affordable homes. Thus, one can now avail this deduction for loans taken up to March 31, 2022 for buying such homes.
This sector received a further fillip with the proposed tax holiday for one more year up to March 31, 2022 for affordable housing projects. With these announcements the government has made clear that affordable housing is a big priority. Seen together, this is a big boost for many real estate developers and companies who are constructing affordable housing projects across the country.
REITs (Real estate investment trusts)
The Embassy and Mindspace REITs were surprisingly well received by investors and have been doing well. The Brookfield India REIT which launched on February 3rd is also expected to do quite well. Overall, the sentiment towards this asset class has been encouraging. Providing a further boost to this fledgling asset class, the 2021 Budget has proposed to make dividend payments to REIT and InvIT’s (Infrastructure investment trusts) exempt from TDS. Efforts will also be made to make these instruments more attractive to investors thus providing additional funds to an ailing industry struggling to raise capital.
There is no doubt that improvement in infrastructure boosts growth of industry. Improved connectivity and accessibility is an advantage like no other and a big factor in home buying decisions. The Finance Minister announced a number of infrastructure investments. These included announcement of new phases of Metro in Bangalore and Chennai as well as in the Tier 2 cities of Kochi and Nagpur. The FM also announced two new technologies ‘MetroLite’ and ‘MetroNeo’ which will be deployed to provide metro rail systems at a much lower cost but with the same experience. The FM also proposed building 8,500-km of highways by March 2022.
In a separate but related announcement the FM also proposed the launch of a portal to collect relevant information about migrant workers who form the bulk of the pool of construction workers across the country. Collecting this information will enable better provision of health, food, housing and other schemes for migrant workers thus helping ensure a more reliable supply of labour.
Budget 2021 has not been the most favourable for the real estate sector which expected sops like relief for income tax which would put more money in the hands of households thus enabling them to buy homes or even input credit under GST for real estate projects. The realty sector is a major contributor to the country’s GDP with its many backward and forward linkages. Announcement of additional sops would have provided a boost to the sector and incremental benefits for the economy.