Budget 2020: The key highlights for the Real Estate sector

Finance Minister (FM) Nirmala Sitharaman’s budget outlay on February 1, 2020, The housing sector didn’t find much of a mention throughout Budget 2020 but is feeling positive that the income tax (IT) burden on individual tax payers have been reduced to an extent. In tandem with the overall theme of the budget, which was to help make a difference in the lives of aspirational Indians through economic development and humane approach, some progressive steps were reiterated.

Following are the key highlights to the Real Estate sector:

Five Smart Cities proposed

Five new smart cities have also been proposed. While the sites haven’t been chosen yet, they will be determined by how promising it will be as an upcoming economic corridor, how well it can revitalise the manufacturing industry and how it will be in sync with the technological and aspirational demands of Indians.

Tax holiday for developers

Affordable housing developers have cheered the tax holiday on profits of those involved in such projects. This tax holiday has been extended by a year- till March 2021, with the additional deduction of Rs 1.50 lakh offered to home buyers being extended by a year as well. “This is expected to boost the affordable housing sector as well as investor sentiments in the near future and will provide ample opportunities for the home buyers to invest,” says director, Eros Group. The continued interest in affordable housing has been welcomed by the sector.

Increased disposable income key to boost housing

Tax rates have been simplified, giving a significant amount of relief to the middle-class. As per the new tax structure, those earning between Rs 5 lakh to Rs 15 lakh annually will get to save some portion of their income. As against the existing tax rate where those earning between Rs 5-7.5 lakh lose out on 20 per cent as tax, the new tax regime will provide for a 10 per cent savings. Likewise, those earning between Rs 7.5-10 lakh per year will also get to save five per cent as the new tax slab calls for 15 per cent tax only. Those earning between Rs 10-12 lakh annually too get a significant benefit as they would be paying tax at 20 per cent as against the existing 30 per cent. For the upper middle class and those with deeper pockets, the proposed new tax structure doesn’t offer much.

It’s interesting to note that the government has decided to offer an optional tax regime, which may help some buyers save some bit to use it towards their home loan EMIs. In short, left with a slightly more money in their hand, the realty sector is hoping that fence- sitters due to lack of liquidity, may now choose to buy homes. So, while the tax simplification has no direct impact on realty, it should help consumers generate demand.

Taxable income slab Existing rate New rate
Rs 0-2.5 lakh Exempt Exempt
Rs 2.50-5 lakh 5% 5%
Rs 5-7.5 lakh 20% 10%
Rs 7.5-10 lakh 20% 15%
Rs 10-12.5 lakh 30% 20%
Rs 12.5-15 lakh 30% 25%
Rs 15 lakh and above 30% 30%

Boost to student housing, commercial real estate and others

The realty sector could use the trickle-down benefit that may work out in terms of student housing and the hospitality industry. An allocation of Rs 2,500 crore has been announced for the tourism sector. New museums or resurrection have been proposed in Ranchi, Jhansi, Kolkata and such other locations. In short, this could help commercial realty and the hospitality industry overall, owing to which, new formats such as short-term stays will also prosper.

Another announcement that has the potential to gear up the residential housing sector is the ‘Study in India’ programme. Ind-SAT exams may be held in Asian and African countries. This may give a fillip to the student-housing business that has generated interest among developers and investors in India lately.

Warehousing has also received a significant boost. The government is determined to create more warehouses in line with the regulatory body and provide them with a viability gap funding at block and taluk levels on a public-private partnership (PPP) model. Of late, there has been an increasing interest in this segment within the industrial and logistics sector.

Indirect benefits of infrastructure

Infrastructure development enhances connectivity and has been a top determinant in deciding the pattern of residential and commercial investment. Infra-led growth in these segments is obvious given that large scale projects such as the Delhi-Mumbai expressway, the Bengaluru-Chennai expressway, Bengaluru Suburban Transportation Project and work on the100 new airports are underway. In her budget speech, FM Sitharaman said, “A huge employment opportunity exists for India’s youth in the construction segment.” Those within the industry have a big role to play. “This translates that developers are also job-creators and hence the sector has the dual responsibility of generating jobs and working in sync with the pulse of a homebuyer looking at newer avenues and corridors to invest in,” says a Noida-based broker.

The National Infrastructure Pipeline (NIP) which has a total outlay of Rs 102 lakh crore is also an opportunity for the housing sector.

President CREDAI National says “Budget 2020 hasn’t been encouraging for the Indian real estate sector, which needs immediate government attention. No sector specific measures were announced for real estate and as an industry we expected bolder steps from the government to revive the ailing sector such as providing more liquidity for the sector, one-time restructuring of loans and tax deductions on home loans to give impetus to buyer sentiment.”

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