Budget 2022: Real Estate, Homebuyers Disappointed As FM Eyes Infra To Spur Growth

The Union Budget 2022 has left the real estate industry disappointed, with no new sops being announced to help revive a sector that is considered crucial for the overall economic revival of the country, post the Coronavirus pandemic.

Even though Finance Minister Niramala Sitharaman touched up on the much-talked about subject of affordable housing and the PMAY in her Budget speech on February 1, 2022, she ignored the sector completely, in terms of offering a helping hand. The government also decided to make no changes in the income tax slab, a widely requested demand from the real estate sector.

"In 2022-23, 80 lakh houses will be completed for the identified eligible beneficiaries of the PM Awas Yojana, both rural and urban. Rs 48,000 crore is allocated for this purpose. The central government will work with states for reduction of time required for all land and construction-related approvals, for promoting affordable housing for the middle class and the economically weaker sections in urban areas. We shall also work with the financial sector regulators, to expand access to capital along with reduction in cost of intermediation," the FM said in her Budget speech.

“For the real estate sector, the Budget placed an outlay of Rs 48,000 crores under the Pradhan Mantri Awas Yojana, and the construction of 80 lakh homes will facilitate affordable housing. However, we would have liked if there was more push on the demand side, such as extension and expansion of the credit-linked subsidy scheme,” said Ramesh Nair, CEO, India & Managing Director, Market Development, Asia, Colliers.

Presenting the fourth budget of Modi 2.0, the FM, however, laid a great deal of emphasis on expanding and upgrading infrastructure - expansion of national highway network by 25,000 kms, boost for the PM GatiShakti master plan, 400 new trains would be manufactured over the next three years - these were some of the announcements on that front.

While stating that the PM GatiShakti progarmme is a transformative approach for economic growth and sustainable development, the FM said the scope of the plan would encompass the seven engines - roads, railways, airports, ports, mass transport, waterways and logistics infrastructure.

"The touchstone of the GatiShakti master plan will be world-class, modern infrastructure and logistics synergy among different modes of movement of both, people and goods, and location of projects," the FM said.

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Budget 2021 Announces Benefits For First-Time Buyers, Affordable Housing

Affordable housing remained a key focus area, as Finance Minister (FM) Nirmala Sitharaman, on February 1, 2021, presented the Union Budget 2021-22 in the Lok Sabha, aiming to revive Asia’s third-largest economy, which has been grappling with the COVID-19 pandemic-induced difficulties.

Boost for first-time homebuyers

While announcing tax measures in this year’s Budget, the first of this decade, the FM said her government was extending the scope of Section 80EEA for another year, i.e., till March 31, 2022. This section enables first-time homebuyers to enjoy an additional tax rebate of Rs 1.50 lakhs every year on the payment of home loan interest. This benefit is over and above the Rs 2 lakh annual deduction that all homebuyers can claim under Section 24.

However, to claim the rebate under Section 80EEA, which was first introduced in the Budget 2019 and was given an extension till March 31, 2021, in Budget 2020, the property must be worth only up to Rs 45 lakhs.

You may like to read: Section 80EEA: Deduction on home loan interest for affordable housing

“In the July 2019 Budget, I provided an additional deduction of interest, amounting to Rs 1.5 lakh, for loan taken to purchase an affordable house. I propose to extend the eligibility of this deduction by one more year, to March 31, 2022. The additional deduction of Rs 1.5 lakh shall, therefore, be available for loans taken up till March 31, 2022, for the purchase of an affordable house,” Sithraman said during her two-hour long Budget speech.

The announcement may encourage more investment in India’s slowdown-hit realty sector, where signs of revival are visible. According to a consumer sentiment survey by PropTiger.com, the number of people who were willing to invest in property was much higher during the September-December 2020 period, as compared to April and May 2020. A majority of the people, who took part in the December survey, voted for real estate as their preferred asset class - while 43% respondents opted for real estate, fixed deposits and stocks were the second and third-most popular investment choices among the respondents, claiming 21% and 20% votes in the survey, respectively.

Tax holiday for builders of affordable housing

Extending the tax support to developers, India’s first ‘paperless’ Budget also announced an extension of one year in the tax holiday for builders of affordable housing projects. Just like Section 80EEA, this measure was also launched in the Budget 2019 to offer support to India’s second-largest employment-generating sector and was subsequently given an extension in Budget 2020. Under this scheme, developers can claim 100 per cent tax deduction on profits from affordable housing projects.

This measure is likely to result in greater launches in the affordable housing segment. For tax purposes, housing units worth up to Rs 45 lakhs are considered as affordable housing.

"Affordable housing is set to get a boost from the extension of the tax holiday and Section 80EEA, till March 31, 2022. Looking at the experience of people in the last one year, affordable housing will get more buyers, as people want to secure their lives by owning a home. The demand for affordable housing is at an all-time high," said Pradeep Aggarwal, founder and chairman, Signature Global and chairman, National Council on Affordable Housing, Assocham.

“Amid a sharp improvement in consumer sentiment with regard to property purchases, following the start of the COVID-19 vaccine rollout, the government’s move in the Budget, to extend the benefit of additional Rs 1.5 lakh tax deduction on home loan interest, until March 31, 2022, will act as a further impetus to the residential property sector. This move will augur well, especially for the affordable housing segment, which will also benefit from the decision to offer a tax holiday for affordable housing projects for one more year, to boost supply,” says Dhruv Agarwala, group CEO, Housing.com, Makaan.com and Proptiger.com.

Boost to rental housing

“We are committed to promote the supply of affordable rental housing for migrant workers. For this, I propose to allow tax exemption for notified affordable rental housing projects,” the FM said in her speech.

“The support announced for rental housing too will go a long way in boosting the real estate market and will ease a lot of pressure in the rental home market. This will also help migrant workers to a great extent and will support them in remaining in metros and other big cities, during times of financial hardships such as the one presented by the COVID-19 pandemic,” says Agarwala.

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Union Budget 2019: Additional Tax Deduction Of Rs 1.5 Lakhs On Interest On Home Loans

Nirmala Sitharaman, India’s first full-time woman finance minister who tabled the Union Budget for 2019-20, on July 5, may have left real estate developers disappointed ─ most of their demands were left unheard. She did give homebuyers some reason to cheer though while presenting the first Union Budget of the Narendra Modi government, in its second term. Sitharaman announced that the government would offer an additional tax deduction of Rs 1.5 lakhs on interest paid on home loans taken up to March 2020, for affordable homes (up to Rs 45 lakhs). “My tax proposals will aim to stimulate growth and incentivise affordable housing,” Sitharaman said.  

Under Section 24 of the Income-Tax Act, homebuyers can claim a deduction of up to Rs 2 lakhs on their home loan interest repayment, if the owner or his family live in the house. The same rule is applicable even if the house is lying vacant. If the property is let-out, the entire interest on the home loan is allowed as a deduction. 

Also read: What Does The Indian Real Estate Sector Expect From Sitharaman’s Maiden Budget

"Interest paid on housing loans is allowed as a deduction to the extent of Rs 2 lakhs in respect of self-occupied property. In order to provide a further impetus, I propose to allow an additional deduction of up to Rs 1.5 lakhs for the interest paid on loans borrowed up to March 31, 2020, for the purchase of an affordable house valued up to Rs 45 lakhs. Therefore, a person purchasing an affordable house will now get an enhanced interest deduction up to Rs 3.5 lakhs. This will translate into a benefit of around Rs 7 lakhs to the middle class home-buyers, over their loan period of 15 years," the FM clarified. 

Considering the Reserve Bank of India (RBI) has brought down the repo rate to a record low by implementing a reduction in rates for three times in a row, the new proposal would encourage prospective homebuyers, who have been fence-sitters, waiting for a price correction, to invest in a property. "This move will drive the much-needed urgency in sales and bring the fence-sitters back into the market soon," points out Surendra Hiranandani, founder and director, House of Hiranandani. 

The repo rate ─ the rate at which the RBI lends money to scheduled banks in the country, currently stand at a nine-year low of 5.75 per cent. Following the RBI’s move, several lenders have also reduced their marginal cost of funding-based lending rates recently.

Homebuyers need more tax benefits 

A lot, however, is left wanting in Sitharaman’s budget as far as homebuyers are concerned. Apart from the demand that the basic exemption limit on income tax be raised from Rs 2.5 lakhs to Rs 5 lakhs that would enable future buyers to save more, the sector was also expecting the FM to increase the upper limit on deductions that could be claimed under Sector 80C of the Income-Tax Act. Under Section 80C of the Act, home loan borrowers can claim deductions for repayment of the principal amount. The stamp duty and registration charges that buyers have to pay are also allowed as tax deduction under this Section 80C even if the money is paid from your own pocket. Since the upper limit of deductions is set at Rs 1.5 lakhs, buyers often fail to get much benefit under this Section when they apply for home loans. 

Some tweaking was also required in Section 80EE to turn fence-sitters into buyers. It was expected that the cap of deductions under this head should have been raised to at least Rs 2 lakhs.