2022 was a mixed year for the real estate industry, with the pandemic a thing of the past leading to a welcome increase in demand after a hiatus. However, some problems continue to hamper industry growth, such as high input costs and rising interest rates. The real estate developer community hopes the next Budget of 2023 will address some problems ailing the industry.
Extend existing initiatives
With regard to direct tax incentives, the existing 100 per cent profit-linked deduction on affordable housing projects, applicable to projects approved by March 31, 2022, may be extended to all housing projects and even for upcoming projects. The provisions relating to the allowability of a 100% deduction on capital expenditure incurred on affordable housing projects may be extended to all commercial and residential RE development projects.
Currently, incentives are provided only to affordable housing projects under the Pradhan Mantri Awas Yojna programme geared towards the housing mission for all.
Awarding Industry Status
The real estate industry should be awarded industry status. This has been a long-standing demand from real estate developers. In last year’s budget, data centres were awarded infrastructure, which has fast-tracked the growth in this sector.
Relief to buyers
The RBI has hiked the repo rate by more than 200 basis points in 2022. This has significantly impacted home loan borrowers as, generally, home loans are on a floating rate basis, and banks have passed on the rate hikes to the loan borrowers. The current limit of Rs 2 lakh as a deduction for the interest on a home loan for self-occupied property for the year needs to be reviewed and doubled.
Reductions in the value-added tax, circle rate, and stamp duty would be significant reforms that would give this industry an advantage at the start of the year. Additionally, we hope for a reduction in the GST rate and an increase in SWAMIH to increase the total amount of the emergency fund and make it easier to access in times of need. In addition, real estate agents should receive interest rate subsidies to mitigate the effects of exorbitant inflation rates and expedite the construction of stalled projects.
The threshold for affordable apartments (attracting GST @1 per cent) should be increased from the current Rs 45 lakh fixed in April 2019, given the rapid increase in real estate prices, specifically in the big cities. Another welcome development would be the categorisation of residential apartments into affordable other than that and luxury. The affordable may be exempted from tax, other than that taxed at a minimal rate and a higher rate on luxury apartments.
The GST on cement, one of the main consumables, at 28%, accounts for almost one-third of the total cement cost and, therefore, is an area of concern. We are also looking to the government to decrease the input costs, such as steel and cement, along with fuel costs.
After COVID- 19 specifically, there has been a surge in the letting of commercial properties. Co-working spaces have become a significant contributor to the Commercial Real Estate sector. New business ventures are heavily dependent on renting required premises and ancillary infrastructure. However, the developers are not allowed to take credit regarding the construction of these buildings, which inflates lease rental. A 10 per cent TDS (tax deducted at source) on their receipts results in working capital blockage.
Increasing the limit for deduction under section 80C for principal repayment of housing loans from the current limit of INR 150,000 to much higher levels would be welcome. Additionally, consideration should be given to one of the sector’s long-standing requests for industry status. Further, a system of single-window clearance should be implemented.
The aforementioned measures will likely increase the viability of real estate development projects and provide desperately needed liquidity to developers saddled with enormous debt and unsold inventory. The long-term outlook of the industry remains favourable. According to NITI Aayog’s projections, the Indian real estate industry will reach a market size of $1 trillion by 2030 and account for 13% of India’s GDP by 2025.
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