With the Budget 2020 presented earlier this month, the real estate sector saw some welcome changes, although expectations with regards to certain policies and steps were higher. The extension of time period for availing the tax holiday has been a positive step for the affordable housing sector. While celebrated, the move fails to bring an instrumental change to the real estate sector as a whole.
The need of the hour is to bring in liquidity within the system to generate customer base. Tax holidays are a boon to developers, however costing with respect to construction and use of materials is still an impediment towards bringing in valuable consumers. Multiple reports suggest that there is large amount of unsold inventory within the current market with rates rising by 5-10% a year (or in some cases, bi-annually); the requisite is to be able to dispose this inventory in order to bring relief and generate liquidity in the system.
Though the prime focus has been affordable housing, the idea should also be to incentivise the middle income group by implementing similar schemes to other related sectors. For instance, the rental housing schemes could have been given a boost – an implementation at the institutional level, with the developers being a part of it would have been a tangential move. Tax relief to home owners could generate investment in the real estate sector, subsequently offering relief and liquidity. While the tax holiday delay will give an initiative to the developers to launch a project, the larger obstacle of ‘sustenance’ still remains unaddressed. Path breaking steps such as GST reduction for material procurement to lower construction costs could be one such measure. Though a constructive step towards affordable housing, this particular action will not impact the real estate sector significantly.
With respect to transactions in real estate, if the consideration value is less than circle rate by more than 5%, the difference is counted as income, both in the hands of the purchaser and seller. The new budget proposes to increase this limit from 5% to 10%. However, this does not seem to offer the necessitated respite to the sector.
Pertaining to infrastructure, the budget proposes an investment of ₹100 lakh crore over the next five years. A much-needed requisite, this is indeed an appreciative step. While ‘Housing for All’ has been the motto of the government for almost five years now, it must be noted that the execution of this scheme should be applicable to other sectors as well. The largest section of the Indian economy comprises the middle-income group, and the system must be devised to cater to them. Focus on expanding infrastructure that can support the nature of development the country is aiming for, is imperative.
With more than 6500 projects across sectors such as housing, safe drinking water, access to clean and affordable energy, healthcare for all, world-class educational institutes, modern railway stations, airports, bus terminals, metro and railway transportation, logistics and warehousing, irrigation projects, etc. being included in the budget for infrastructure – this seems to be a radical step. A metropolitan city like Mumbai still grappling with lack of quality roads, traffic snarls, etc.calls for immediate action towards provision of basic infrastructure. It is discouraging to see that while residences, commercial and retail developments are on an exponential rise, the country’s infrastructural capabilities fail to sustain them. The backbone of the policies proposed by the government for the real estate sector are the educational institutes, medical facilities, bridges, rail and road networks, etc. – case in point, the city of Hyderabad. Few years ago, to boost the influx of trade and tourism into the city, the government developed a blueprint to upgrade the infrastructure, and that has proven to be monumental.
Post the demonetisation drive and implementation of GST, The real estate sector is going through a period of consolidation. These will bring deep and long term improvements to the industry and are steps in the right direction. However, there could have been more initiatives that could boost the momentum in this sector. In conclusion, the budget aims to proffer some optimistic schemes and policies, yet lacks a larger vision for the real estate sector to truly progress and evolve in the short run. Perhaps, more pervasive and inherent guidelines are the need of the hour.
Views are personal.
The author is vertical head, Developer Spaces, ECPL.
