How friendly is the budget 2019 for the realty sector?

5 years ago

How friendly is the budget 2019 for the realty sector?

The real estate sector was more or less happy with the budget proposed by the Finance Minister in parliament as the budget proposed a flip to the affordable housing sector. For the affordable home buyers within the price of Rs. 45 lakhs, interest paid on home loans was earlier deducted to Rs. 2 lakhs and this budget made it Rs. 3.5 lakhs which translates into a benefit of Rs. 7 lakhs for a home buyer procuring a loan for a tenure of fifteen years.

Facilitating the vision of the government of “Housing for All” by 2022, the government proposed to build 1.95 lakh homes for the eligible beneficiaries under the Pradhan Mantri Awas Yojna(PMAY) – rural and another 19.5 million houses under PMAY-urban scheme between the years 2020 to 2022. Government estimates say that about 1.54 crore rural homes have been completed in the last five years.

The definition of affordable homes according to the IT Act and the GST Act has been amended and any home within 60 square meters in metropolitan areas and 60 to 90 square meters in non-metropolitan areas would be considered as an affordable house, provided the cost of the house is within Rs. 45 lakhs.

At the same time, the FM announced tax holiday for the profits earned by the developers for affordable housing. Although the government had its own agenda according to the vision that it had regarding housing and organizing the sector and the budget 2019 is in accordance with it, but the critics analyze it under the microscope. Let’s examine the budget in the context of the problems of the realty sector and the prior expectations of the sector.

How far have the expectations been met?

In 2017 the realty sector contributed about 6 to 7 percent of India’s GDP and the nation aims to bring it up to 13 percent by 2025. Are the budget measures taking us to that direction is the question of many.  In doing this analysis we have to understand the problems of the industry and the prior expectations of the sector and its reasons.

One of the biggest problems that the sector was plagued with was the liquidity crunch which worsened after the measures like RERA, GST, demonetization, etc. The demand was another factor that the sector was concerned with as after 2016 the realtors were expecting the demands of the sector to rise and hoping for the buyers’ sentiments to go up only to boost sales.

The analysts feel that liquidity crunch is one of the main factors affecting the sector as it prevented the completion of about 560,000 units across the top seven cities of the nation. In this context, the sector hoped some facilitation from the government to boost and strengthen the NBFC sector along with making it easy for the middle class to mobilize funds for their purchase of a home.

The proposed budget has it all, as it attempted to strengthen the NBFC sector by imposing the regulatory mechanism of the RBI over the sector. There is also the proposal of providing a partial credit guarantee of public banks for six months for once for a loss of 10% arising on the occasion of purchase of high-rated pooled assets of the financially sound NBFC companies. The tax deductions with the government rendering the benefit to the middle class of saving up to Rs. 7 lakhs for a purchase of a home costing Rs. 45 lakhs for a loan tenure of 15 years is a great booster for the home buyers.

Furthermore, the government’s proposal to access the external savings in the external currencies would also ease the pressure on domestic savings and the bank interest rates. This measure of the government would subsequently translate into repo rate reduction by the central bank facilitating banks to reduce the lending rates and boost credit growth. Undoubtedly, this would open a way to supply the required money flow to the cash-starved sector.

The boost to the affordable sector of real estate is one of the prior agendas of the government and this budget also eased the sector. The demand of the realty sector to grant it the industry status has been a long-standing claim of many. The government has already granted the industry status to the affordable sector of real estate which has given the affordable housing developers a lot of playing ground. Along with that this budget also proposed the tax holiday to the affordable housing companies and builders which is certainly an encouraging move for the industry. Along with that joint development and a mechanism for concession has been made easier to be utilized for releasing land from the Central Government including the PSUs for developing affordable residential projects. This budget also stresses on the infrastructure development and has taken a few progressive measures too.

Taking all these moves into consideration many feel that the budget has not disheartened the stakeholders of the realty sector. Although the single window clearance and industry status have not been totally taken care of which were the long-standing demands of the industry, the real estate sector is certainly streamlined to be more organized and structured to gear up to become a more productive one.