The Budget held some cheers for real estate developers, particularly those with affordable housing projects.

In a bid to increase the supply of affordable housing units, the Finance Minister announced extension of tax holiday up to March 2022. This will encourage developers to launch new projects under this category. According to real estate consultant ANAROCK, affordable housing accounts for more than 35 per cent of the supply across the top seven cities in the country. Since the re-opening of economy, this segment has seen higher demand from home buyers.

However, some of the other expectations of developers, including increasing the cap in the value (currently at ₹45 lakh) of an affordable housing unit, and infrastructure status for real estate industry, have not been met in the Budget.

The realty sector has been witnessing steady recovery in its residential demand across categories — affordable housing, mid-income and premium housing — since June last year. The various measures announced by the Centre since May last year have worked in favour of the developers.

The realty index, which includes companies with presence in affordable housing such as Brigade Enterprises and Sunteck Realty, has rallied 78 per cent since June last year to now.

According to a Knight Frank India Real Estate report, housing sales in the second half of last year (July to December) have declined 19 per cent compared to the same period in the previous year. While housing sales are yet to recover to pre-Covid levels, between H1 2020 and H2 2020, sales have increased 60 per cent, particularly from affordable and mid-income housing projects.

To maintain this momentum, the Budget has given a boost to developers under Section 80 IBA. Currently, developers claim 100 per cent deduction of profits from affordable housing projects under this section. The deduction is applicable only if these projects are approved during the period from June 1, 2016, to March 31, 2021. Now, this benefit has been extended up to March 31, 2022. This will benefit developers with focus on affordable housing projects, including Brigade Enterprises, Sobha, Sunteck Realty and Mahindra Lifespaces.

Given the off-take in residential demand, these companies have fared better between April and December last year. For instance, Sobha, a Bengaluru-based realty player in mid-income, affordable and luxury housing, reported increase in new sales (value) by 22 per cent y-o-y to ₹887.6 crore during December quarter 2020.

A comfortable debt position too has helped these companies withstand challenging times.

Further, under Section 80 IBA, the Centre has also given 100 per cent deductions of profits and gains derived from the business of developing and building housing projects for rent.

On the other hand, if the Centre had announced extension of credit linked subsidy scheme (CLSS, where centre provides subsidy for home loans taken by first time home buyers) for middle income group, it would have helped developers off-load their unsold units faster.

Related Topics