“Just looking like a wow,” KM Birla quotes a viral meme to describe the Indian economy in his annual note. Despite many factors engulfing large pockets of the world, India remains unwaveringly optimistic. Against this backdrop, one important event of interim budget 2024 looms for the soon-to-be 3rd largest economy. Creating an air of excitement and guessing games, the real estate sector eagerly looks forward to what’s coming in the budget. Real estate investors, developers, and homebuyers are on the edge of their financial seats, waiting for the budget to spill the financial beans. They’re not just looking for a budget that solves problems but also acts like a nurturing elixir, fueling the growth of the real estate world.
Skyscraper Dreams – Key Expectations from Interim Budget 2024
On February 1, the Finance Ministry will present the Interim Budget 2024. It is expected that the Indian economy will grow by 7 percent in the financial year 2024. Real estate experts are hopeful about positive changes in the upcoming Interim Budget for 2024-25. They expect reforms to encourage people to buy homes and invest more in the sector. The real estate industry is eager for a budget that supports growth and resilience in the post-pandemic era.
Even though it’s an interim budget, expectations are still high as ever! As per the reports quoting sector experts, the real estate sector is expecting the following things from Finance Minister Nirmala Sitharaman:
Affordable Housing Revival
Although there is strong demand and increased borrowing activity in the luxury and high-end housing market, there has been a noticeable decline in demand for home loans in the affordable housing sector. Several reasons exist for this decrease, particularly the scarcity of affordable housing projects. The increase in land and construction costs has made it difficult for developers to determine the feasibility of launching projects in this segment.
Demand for affordable housing loans has further declined due to the end of the government’s credit-linked subsidy scheme (CLSS). To revive the sector, it is expected to reinstate the CLSS, introduce new incentives in the upcoming budget, and increase deductions against home loans to boost mid-segment housing. These measures can stimulate growth and affordability in the housing market.
Change in The Qualifying Standards for Affordable Housing
Affordable housing is a crucial aspect of providing access to shelter for citizens in India. The Ministry of Housing and Urban Poverty Alleviation describes affordable housing as a property that is based on the buyer’s income, price, and size of the property. However, the current definition of affordable housing needs to be more inclusive. While a carpet area of 60 square meters is reasonable for large cities, the prices of up to ₹45 Lakhs make it unaffordable for a significant proportion of the target clientele.
Therefore, the government must re-evaluate the qualifying cost of properties within cities’ affordable housing segment. The government should consider making affordable housing accessible to a larger segment of the population by adjusting the qualifying cost of properties and offering more incentives to developers.
Increased Tax Exemption For Housing Loans
Access to housing is a basic need for individuals, and tax benefits should be designed to support homebuyers effectively. Introducing a dedicated section exclusively for deducting home loan principal repayment is essential. Section (80C) is currently saturated with various deduction avenues, and only a limited number of borrowers utilize this section for home loan deductions. Therefore, there is a strong demand for creating a separate section for home loan principal repayment.
Increased Deduction for Interest on Home Loans
Due to the continuous rise in property prices, borrowing amounts have increased substantially. Furthermore, the increase in interest rates has resulted in higher Equated Monthly Installments (EMIs) for homebuyers.
Given these challenges, it is important to reconsider the current deduction of ₹2 Lakhs against home loan interest. It’s important to note that the last adjustment was made in 2014, increasing the deduction by ₹50,000.
Incentivising Rental Housing
The budget can assist homebuyers and encourage the development of rental housing for low-income individuals who cannot afford a home. Despite owning houses that cost less than ₹50 Lakhs, some investors do not rent them out due to low yields. To address this issue and increase the supply of rental properties, the budget could provide a 100% exemption on rental income up to ₹3 Lakh for houses costing up to ₹50 Lakh. This incentive could encourage investors to rent out properties in the segment most affected by the housing shortage.
Changes in Capital Gain Tax Regime
Under Section 54 of the Income Tax Act, if you sell your existing house and make a long-term capital gain, you can use that money to buy or construct a new property. However, suppose you invest in an under-construction property. In that case, you can only claim an exemption if the construction of the new property is completed within three years of selling your old house.
Despite implementing the Real Estate Regulation and Development Act (RERA), under-construction residential projects are often delayed and exceed their deadlines. This makes it difficult for homebuyers to set off their capital gains in under-construction properties. The completion timelines for such properties should be extended from three to five years to help mitigate this issue.
Single Window Clearance System
If the Interim Budget 2024 includes a single-window clearance platform for the realty sector, it could significantly speed up project development and increase customer confidence while minimizing uncertainties related to approvals and legal disputes. This could also help developers reduce compliance and approval costs.
Industry Status for the Real Estate Sector
The real estate sector has high expectations from the interim budget 2024. Granting industry status would be a significant milestone for the sector. The implementation of RERA has made developers more responsible and vigilant, which means that it’s the right time to give industry status. This status would enable better financing and propel growth for the construction industry, which is a significant employer, especially for unskilled and casual laborers. Therefore, it is an opportune moment to give industry status to the real estate sector, and this move would undoubtedly bring many benefits.
Tax Incentives on REITs
The Finance Minister should introduce tax incentives under Section 80C for investors in real estate investment trusts (REITs) to encourage prospective investors.
Reduction in Stamp Duty
Reducing stamp duty rates or allowing the expenditure of twice the duty paid as income tax could encourage more people to register agreements. It would make property transactions easier and smoother. Reduction in stamp duty rates has worked before. According to digital data, the Maharashtra government reduced stamp duty during the pandemic, increasing registered property purchases.
To conclude,
The Indian real estate market reached its pinnacle in 2023. Witnessed sales nearing 500,000 in major cities, exhibiting a year-on-year growth of 31%. The positive outlook in the market is expected to persist in 2024. Supported by a robust macroeconomic scenario, steady lending rates, and a thriving job market. Concurrently, the government must enhance growth through thoughtful initiatives.