Has the Budget adequately addressed the demands of the real estate sector?

The real estate sector and home buyers have been facing several hardships over the past few months. It can be a difficult task for a government to address all issues while presenting the Budget.

The government has taken up urgent matters in the Union Budget 2019-20 announcement with Infrastructure development being on top of its agenda, which will help the sector in the long run.

The government has also tried to take a holistic approach and tried to address the concerns of first-time home buyers and to bring in liquidity in the market. So, overall, the Budget is fairly balanced and not an entirely disappointing one for the real estate sector.

Push for infrastructure growth

The government has announced its intent to invest over Rs 100 lakh crores in the next five years, to augment the infrastructure in the country. The government also announced a scheme to build 30,000 kms of roads, using green technology.

Liquidity issues faced by the real estate sector

The real estate sector has been plagued by a liquidity crunch for some time now with the problem getting exacerbated more recently by the funding challenges faced by NBFCs. This has resulted in a vicious cycle of developers failing to complete projects on time and hence not being able to service their debts, which in turn is causing NBFCs to default.

In the Budget, the government has allowed PSU banks to purchase pooled assets from sound NBFCs. The government will provide a one-time partial guarantee of up to 10%, for six months. The government has also withdrawn the debenture redemption reserve requirement for NBFCs, creating more room for them to extend loans with extra liquidity.

To make an investment in rental property attractive

Investors looking to put money into real estate for the long-term with a view to earn rental income, are often deterred by an archaic tenancy law that does not offer sufficient protection to the lessor. The current rental law is not adequate to help build a good understanding between the lessor and the lessee.

The government has proposed to come up with a Model Tenancy Law, which will address all the concerns of both lessors and lessees. Such a law can bring in considerable investments in real estate from domestic, as well as NRI investors looking for steady returns.

More tax benefits for home buyers

Home buyers were expecting an increase in the tax benefit u/s 80C and u/s 24. The government partially heard the buyer’s wish and allowed an extra tax deduction of up to Rs 1.5 lakhs, over and above the current deduction of Rs 2 lakhs, against interest on home loans (up to Rs 45 lakhs) as an initiative to boost affordable housing.

What may continue to challenge real estate sector?

The government has taken many steps that could boost growth in the realty sector. However, it stopped short of addressing long-standing demands of the realty sector such as industry status for the sector, single-window clearance to projects, steps towards land reforms and bringing stamp duty under the purview of GST.

The government also raised custom duties on several items used in the construction industry, such as tiles, PVC, vinyl flooring, etc. This could lead to a higher cost of construction, thereby putting upward pressure on property prices.

There is a massive inventory of stressed real estate assets in the market, which is a big factor in the liquidity crunch being faced by the sector and the distress being faced by buyers. The government has not addressed this issue in the Budget. One was hoping that the government would set up a stressed asset fund for the sector to ease the logjam, but that has not happened.