The coronavirus pandemic has adversely impacted the world and such major events have a huge impact on the global economy. Considering real estate sector is the second-largest employer in the country and directly or indirectly accounts for approximatley 10 percent of the GDP, the revival of the sector is imperative for growth. It, therefore, deserves serious attention in the upcoming budget.
Despite the interest subsidies, tax holiday under section 80 IAB for developers, Alternative Investment Fund (AIF) of Rs 25,000 crore and awarding infrastructure status to affordable housing, the government is still far from its goal of 11 crore houses by 2022, 100 Smart City projects and Housing for All by 2022.
The housing sector is facing problems like the unsold inventory of residential units and incomplete projects due to which several homebuyers are still waiting to get possession of the property.
Eyeing fiscal revival following the pandemic-induced lockdown and slowdown, the Budget 2021-22 will prove to be a make or break deal for the Indian economy.
With the budget a few days away, we expect the government to consider:
• Releasing additional land parcels
With increasing population, it becomes imperative for the government to release more land parcels, including the peripheral land, to meet the housing needs.
This can only be possible if substantial changes are made to the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 along with revision in FSI norms.
• Incentivise research
More incentives and monetary benefits be offered to builders that do R&D activities for new building materials and technologies to deliver low-cost, affordable and environment-friendly housing with a focus on integration of the land and transport network.
• Faster approval mechanism
Despite RERA, to develop a housing project in a metro city in India, a builder needs more than 35 approvals at every stage—feasibility stage, sanction stage and post-completion stage.
Meeting each and every regulatory requirement takes on an average five months to more than a year. This leads to project delays and increases the cost of the development of the project, which, in turn, is to borne by the buyer.
It is still very difficult to get proper codes in terms of land title. The need for a single-window computerised clearance system that can substantially reduce the manual intervention to carry out the approval process along with decentralisation of the decision-making by the government can help speed up things.
• Change in the limits for ‘affordable housing’
An increase in the price cap from Rs 45 lakh is necessary, as most houses in Mumbai Metropolitan Region (MMR) and National Capital Region (NCR) do not qualify as affordable housing, resulting in loss of benefit of reduced GST of 1 percent and also the benefit of tax exemption for such projects.
• Industry status
Award industry status to the entire real-estate sector to allow developers to access funds at an affordable rate of interest.
• Take a cue from the foreign countries
There is enough undeveloped vacant land available in India where people have parked their black money. The imposition of heavy vacant land tax as prevalent in South Korea, the US, the UK and Singapore will help release these land parcels for infrastructure development.
Indian real estate uses the sell then build (STB) system, which leads to issues such as abandoned projects, late deliveries, etc. One must adopt the build then sell system as prevalent in Malaysia, where the government creates housing projects first and then sells them off.
• Higher rental allowance
The government should also come out with policy reforms on rental housing like higher rental allowances, which will help people to get tax benefits and encourage them to go for rental units.
• Increase in direct and indirect tax benefits
a. Increase in the standard deduction from the current 30 to 55 percent from the net annual value.b. Increase the limit for interest on housing loan from ₹ 2 lakh to ₹ 6 Lakh for self-occupied house property.
c. Merge the stamp duty charges with the GST to reduce the cost of houses
While COVID-19 remains a key concern to global and the Indian economy, we expect such measures will boost the real estate sector. The above implications will in turn play a big role in modernising the sector while preparing the industry to embark on the next phase of growth.