After a lost decade, when home price increases lagged inflation, home buyers and builders are eagerly looking at Budget 2022 for long-overdue boons. Some of them – such as the infrastructure status for the sector – has been something that has been repeated for many years and has become somewhat cliched. Others – such as increase in the home loan interest deduction limit – do make the rounds every year with different threshold expectations. But there are also a few interesting new-age suggestions and hopes this time around.
Buyer wishes
The most popular and tangible demand is on tax deduction. The home loan interest limit for self-occupied homes, under Section 24, is currently capped at INR 2 lakhs. In 2019, this was temporarily raised by INR 1.5 lakh, under Section 80EEA, if certain conditions - purchase price limits and loan sanction period -were met. This benefit was later discontinued.
The withdrawal was however not seen as a serious disincentive due to the macro environment. Home loan interest rates were on a downtrend in the last few years – from about 9 percent in 2019, it came down to under 7 percent in 2021. Coupled with somewhat stable home prices, the limit of INR 2 lakhs was not a deal breaker. However, with expectations of higher interest rates in the economy, there are strong requests to push up the limit substantially - to INR 5 lakhs. If done, this can be a big sentiment booster for buyers, as tax benefits are shown to guide financial decisions.
Allied to this is the increase in principal deduction limit on home loans under Section 80C of the IT Act, from the current cap of INR 1.5 lakh. This limit was last updated in 2014 and it is widely felt that is time to revise this upwards.
To spur demand for homes from middle-income segment, some tweaks to what is defined as an ‘affordable home’ is expected. Home buyer demand can be stoked if more properties are covered in this category, given the various benefits – such as lower GST, interest rate benefits – for affordable housing.
For instance, the size limit for affordable homes can be increased to 90 sq m in metros, from 60 sq m. In non-metros, it can be upped from the current limit of 90 sq m to 120 sq m. Likewise, the price limit may be increased from INR 45 lakhs - which is very low, especially for metros such as Mumbai. Increasing the cap for homes in non-metros would also be helpful, especially if the size limit goes up.
Another expectation is some updates to the Pradhan Mantri Awas Yojana (PMAY). There is data that shows that many homes remain incomplete as allotted funds do not cover construction costs and buyers are not able to access other lending sources. There is hope that given the success of the PMAY scheme in enabling Housing for All, there may be some upgrades and perks – such as expanding it beyond the current target segments and considering the pandemic-induced ground realities.
Developer wishes
Supply side sops are also expected, as they flow down to buyers. Property developers hope for both a continuation of existing benefits plus a few more new ones added. For example, the tax holiday currently offered to affordable housing developers may continue beyond FY 2021-22.
Another hot-button item is the GST on construction input materials such as cement. Commodity prices have been on an uptrend and developers have not stuck between a rock and a hard place - passing it on buyers and dampening demand or absorbing it and suffer losses. So, all eyes are on the Government to keep a lid on cost escalations by reducing GST rates.
As is a ritual every year, there is the age-old ask of industrial status being given to the real estate sector, to help developers avail lower cost of capital. Capital is a dire need, as liquidity is low and lenders are not very forthcoming due to various concerns about the sector. Another long-standing demand is to provide a single-window clearance for projects.
New demands
While most of the above demands have been some variant of what was seen in the past, there are a few new requests and suggestions. For instance, there is strong recognition of the need to bring digitization to the sector for better transparency and efficiency in the systems and process. And technology providers such as proptech startups are expecting some sops to scale up the reach of such solutions.
Also, GST rationalization and removing it for under-construction property has been a long-standing demand from the industry. A new demand is for simplifying GST on joint developments and exempting GST for the completed home.
There has been good amount of interest in Real Estate Investment Trusts (REITs) from investors. To further deepen the market, real estate development body CREDAI has suggested some incentives such as tax exemption on REIT investments.
There are also demands to rationalize registration charges across States. With many new regulations such a RERA and the proposed Tenancy Rules expected to bring more uniformity, bringing more common approach is expected to be a theme that would play out over time.
The author is an independent financial consultant