After a lost decade, as home prices rise behind inflation, home buyers and builders are eagerly watching Budget 2022 for long-awaited benefits. Some of them – like the status of infrastructure for the sector – have been repeated for many years and have become somewhat clichéd. Others — like increasing the home loan interest deduction limit — make the rounds every year with different threshold expectations. But there are also some interesting new-age suggestions and hopes this time around.

Buyer’s wishes

The most popular and tangible request concerns the tax deduction. The interest limit on home loans for self-catering houses, under Section 24, is currently capped at INR 2 lakhs. In 2019, this amount was temporarily increased by INR 1.5 lakh, under Section 80EEA, if certain conditions – purchase price limits and loan sanction period – were met. This benefit was later removed.

The withdrawal, however, was not seen as a serious deterrent due to the macroeconomic environment. Mortgage interest rates have been on a downward trend over the past few years – from around 9% in 2019 to less than 7% in 2021. Coupled with somewhat stable house prices, the INR 2 lakhs limit was not a deciding factor. However, with the expectations of higher interest rates in the economy, there are strong demands to push the limit significantly – to INR 5 lakhs. If this is done, it can be a great incentive for buyers as tax benefits are presented to guide financial decisions.

Along with this, there is the increase in the principal deduction limit on home loans under Section 80C of the IT Act, from the current limit of INR 1.5 lakh. This limit was last updated in 2014 and it is widely believed that it is time to revise it upwards.

To stimulate demand for homes in the middle income segment, some adjustments to what is defined as an “affordable home” are expected. Demand from homebuyers can be fueled if more properties are covered in this category, given the various benefits – such as lower GST, interest rate benefits – for affordable housing.

For example, the size limit for affordable housing can be increased to 90 m² in metros, starting at 60 m². In non-subways, it can be increased from the current limit of 90 m² to 120 m². Likewise, the fare limit can be increased from INR 45 lakhs – which is very low especially for metros such as Mumbai. Raising the cap for homes in non-metros would also help, especially if the size limit increases.

Another expectation is for Pradhan Mantri Awas Yojana (PMAY) updates. There is data that shows that many homes remain incomplete because allocated funds do not cover construction costs and buyers are unable to access other sources of loans. There is hope that given the success of the PMAY program in enabling housing for all, there could be improvements and benefits – such as expanding it beyond current target segments and addressing the realities of the ground induced by the pandemic.

Developer wishes

Dips on the supply side are also expected as they are passed on to the buyers. Property developers are hoping for both a continuation of existing perks and a few new additions. For example, the tax holiday currently offered to affordable housing developers could continue beyond the 2021-22 fiscal year.

Another hot item is the GST on building materials like cement. Commodity prices have been trending up and promoters are not stuck between a rock and a hard place – passing it on to buyers and dampening demand or absorbing it and taking losses. Thus, all eyes are on the government to limit cost increases by reducing GST rates.

As is a ritual every year, there is the age-old demand for industrial status granted to the real estate sector, to help developers benefit from a lower cost of capital. Capital is urgently needed as liquidity is low and lenders are not very open due to various industry concerns. Another long-standing request is to provide one-stop clearance for projects.

new demands

While most of the requests above have been a variation of what has been seen in the past, there are a few new requests and suggestions. For example, there is a strong recognition of the need to introduce digitization in the sector for better transparency and efficiency in systems and processes. And technology providers such as proptech startups expect certain sops to increase the reach of these solutions.

In addition, streamlining and eliminating the GST for goods under construction has been a long-standing request from the industry. A new request is to simplify the GST on joint developments and to exempt the GST for the completed house.

There has been a lot of interest in real estate investment trusts (REITs) from investors. To further deepen the market, real estate development body CREDAI has suggested some incentives such as tax exemption on REIT investments.

There are also demands for rationalization of registration fees in all states. With many new regulations such as a RERA and proposed rental rules expected to bring more uniformity, adopting a more common approach should be a theme that will play out over time.

The author is an independent financial consultant

Published on

January 29, 2022