Demand for residential real estate has shown resilience in the last 18 months -- particularly in the mid- to high-income segments -- despite the disruption caused by the coronavirus pandemic, on the back of record low interest rates on home loans, pent-up demand, incentives by state governments and a hybrid working model. An increase in the deduction benefit available on interest and principal payments on housing loans for buyers can further support this recovery trend.
Enhanced tax concessions on income from renting of housing properties and a removal of taxation on notional rental income can also boost demand for new properties.
Enhanced tax deductions, government subsidies and GST benefits are currently available for the affordable housing segment. The increase in the cap in the area, currently at 60 square metres, and the value of the units, currently capped at Rs 45 lakh, eligible for the affordable housing benefits will provide incentives to buyers across a wider spectrum, and stimulate demand.
Additionally, the incentives of extra deduction of home loan interest on affordable houses and tax holidays for the affordable housing segment were extended till March 22. A further extension, beyond March 22, will support sales momentum.
Schemes such as the Pradhan Mantri Awas Yojana (PMAY) have played a pivotal role in improving home ownership. A continued focus on budgetary and extra budgetary allocations to such schemes can improve the access to housing in the low-to-mid-income segments of the population. The pending expenditure on PMAY is over Rs 1 lakh crore. In FY2022, the allocation was Rs 48,000 crore (BE), and in FY2021, Rs. 41,000 crore (RE). This needs to be ramped up in the upcoming Budget to meet the target of 50 million dwelling units under the PMAY.
On the supply side, small- to medium-sized players faced challenges in terms of reduced cash flows and credit availability owing to the pandemic. Efficient models for targeted credit availability to highly impacted projects can be considered to tackle potential issues such as stalled projects.
The SWAMIH fund was announced in November 2019 with a target fundraise of Rs. 25,000 crore, out of which, Rs 10,000 crore was raised from the government and the remaining from large institutional investors, including LIC, HDFC and SBI. Further augmentation of the budgetary allocation for the SWAMIH fund will support completion of large stuck real estate projects in the country.
After the announcement of the last Budget, multiple SPVs have been set up by the PSUs to unlock land bank potential; Budget 2022 can provide additional thrust and lay down targets on actual monetisation of this land bank, aiding the improvement of land parcel supply for real estate development in the country.
Notwithstanding various industry-specific amendments to the insolvency resolution laws, the implementation of the bankruptcy process for real estate companies remains a challenge. Steps to streamline the insolvency process to achieve faster adoption and implementation of resolution plans will be beneficial to both lenders and homebuyers in such stuck projects. On the commercial real estate segment, incremental steps taken over the past years have resulted in a successful track record of REIT issuances. Steps to improve the ease of access to debt capital and to enhance retail participation can channel more investments into this segment.
--Kapil Banga is Sector Head and Assistant Vice President at ICRA. He has been tracking the real estate sector at ICRA for over a decade. The views expressed in this article are his own.
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