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Interim Budget 2019 may help homebuyers and not builders

Business Insider India logoBusiness Insider India 31-01-2019 BI India Bureau

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  • The focus will be to woo the vote bank – the middle class homebuyers
  • Real estate players expect the government to lower the housing interest loans
  • NBFCs expect a bigger push from the government

India’s real estate industry has been struggling for a few years now, and is looking up to the government for support.

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But the government’s focus may be on the middle class Indians who are a major part of its vote bank, and even the real estate industry is conscious of that. However, the players in the sector hope that while doling out sops to the voters, the government may bail the builders out with incentives and sops that will revive demand for properties.

Real estate is the second largest employer in the country and it has been going through a phase of reinventing itself in recent years. The sector, infamous as a haven for ill-gotten wealth in the country, has been cleaned through a series of reforms after the establishment of the Real Estate Regulatory Authority (RERA) in 2016.

The regulatory chokehold, combined with tepid demand, had kept the builders in doldrums until now. The focus on, affordable housing in the last budget has helped bring some of the buyers back.

2018 saw some recovery in the real estate launches. The top seven cities in India recorded launches of around 1.95 lakh units in 2018, up 32% from a year ago. Affordable housing comprised the lion’s share of new launches at 40%, according to Anarock. 

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Another sign the industry might be improving is unsold inventory, which measures homes and properties that builders are unable to sell even after construction. At the national level, unsold inventory has steadily dropped over the last four quarters, from 47 months at the end of December 2018 to 33 months now.

With the builders in recovery mode, the government may focus on pushing buyers to bet their money on new homes.

Benefits for homebuyers

Incentives for India’s massive middle class may also be a politically prudent step for the Narendra Modi government in an election year. “The fact that the exemption limit (under Section 80C) was raised last in 2014 after a decade-long hiatus raises high expectations that this route may be revisited in this budget. It is certainly an assured crowd-pleaser, which matters in the electoral year,” said Anuj Puri, Chairman – ANAROCK Property Consultants.

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However, the government efforts to push affordable housing also appear to be moving slowly. For instance, the Pradhan Mantri Awas Yojana, a central government scheme launched in 2015 to promote affordable housing for all, has thus far only sanctioned 32% of the amount it allocated initially, pointed out Puri citing ministry data.

Another aspect that the builders want the government to push for is lower the interest rates on housing loans.

‘High tax’ burden on developers

However, developers have raised the issue of high taxes on real estate in India. “I would also add the expectation of bringing stamp duty within the purview of GST; input credit of construction against the output of renting; incentivize rental housing to meet Housing for All commitment by 2022 and increasing limit of interest deduction, paid on the home loan, from 2 lakh to 3 lakh," said Dr Niranjan Hiranandani, President, NAREDCO told Zee Business.

The GST Council has also formed a panel which will look into the problems that currently cloud the real estate sector, mainly after the implementation of GST, both from the perspective of the buyers as well as the developer. The panel will be headed by Gujarat deputy chief minister Nitin Patel.

Given the recent massive liquidity crunch post the IL&FS crisis among non-banking financial companies (NBFCs), the industry further expects India’s government to promote easier lending options, which in turn can spur access to home loans.

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