Real Estate & Indian Budget – Expectation Vs Reality

Indian Budget 2020 was recently announced and has witnessed with several surprises for the real estate sector. The realty industry had several demands which were expected to be addressed in the budget 2020, but only a few caught the attention of finance minister.

  • Boost to Affordable housing

The government intends to achieve the target of Housing for All by 2022 as this budget has also shown efforts in improving the affordable housing segment. Affordable housing received a major uplift and various taxation relief measures were initiated which can benefit the property sector. However, the removal of exemptions under the new income tax regime, implying no tax benefit on principal and interest for home loans would be a dampener for the sector.

The government proposed to extend additional Rs. 1.5 lakh tax benefit on interest paid affordable housing loans till 31st March, 2021. This will emphasise more first-time home buyers to enter the market.

Relationships with Real Estate Developers

In addition, the date of approval of tax holiday provided to developers of affordable housing would also be extended by a year. This would encourage more and more developers to transition into affordable housing as the luxury segment is already reeling due to overexposure and under consumption.

Credit Guarantee to NBFCs/HFCs will provide Respite to the Market.

The liquidity crisis has been a major issue for the Indian Real Estate Industry. In the budget, the government has proposed to enhance the credit guarantee of the Non-Banking Financial Corporations (NBFCs) and Housing Finance Corporations (HFCs) so that it will bring more liquidity in the market and will bring some respite to real estate industry as well.
The RBI will supplant the National Housing Bank (NHB) to regulate Housing Finance Companies (HFCs). These elements (NBFCs, HFC’s and PSBs) are the head providers of development funds to designers and home loan money to purchasers.

  • Infrastructural development

The government announced several schemes and huge funds have been allocated for industry and commerce. The budget has revealed the government’s intentions towards advancing infrastructure in the coming year. Besides, plans for developing strategic national highways have also been announced, which can help bring about developmental changes in the real estate sector.

Moreover, the budget emphasised on the current warehousing situation in the country. There are plans to build more warehouses and give them a boost through the viability gap funding under the Public Private Partnership (PPP) arrangement. This again will prove beneficial for the commercial property market.

Aerial View of Real Estate

  • Development of Smart Cities in the Country

Another great news for the real estate industry is that the government has proposed to develop five new smart cities in the country which will generate demand and will create new job opportunities.

The government proposed wide-ranging measures towards spurring economic development, digitization, smart cities, start-ups, tourism, infrastructure and affordable housing, among other sectors. Overall, a lot of positive things are planned for the real estate developers and investors. However, a number of pressing issues have still gone unnoticed such as the need for better liquidity in the real estate market so that the developers ailing for funds could get relief.

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