View: 4 Budget announcements that can boost residential realty demand

The residential segment made a strong comeback in 2021, with housing sales in the top seven cities rebounding to 90 percent of pre-COVID levels and new launches reaching levels last seen in 2019. The prospects of the housing segment generally look bright in 2022. However, it remains to be seen to what extent, if any, the Omicron variant of COVID-19 impacts real estate activity.

So far, the new variant has not posed any serious impact on realty. However, the sentiment revival in residential real estate during the worst of the first and second waves of the pandemic hinged heavily on policy support. The RBI and the government have proactively aided the sector with various demand boosters. Stamp duty cuts and the extension of tax benefits in affordable housing in 2021’s Budget were key among the moves that made a difference.

Despite rising inflation, the central bank has kept the repo rate unchanged for the last nine straight bi-monthly monetary policy reviews, extending the benefit of low interest rates to homebuyers. These measures have helped the housing segment, which plays a significant role in the overall economy to maintain an even keel during a very rough phase.

The residential segment looks forward to further support beyond the mainstay demands of an industry status, easy availability of finance and lower GST rates.

Here are some moves that would help in spurring residential demand:

Revision in home loan deduction limit under Section 24 of the Income Tax Act

There is a need to hike the Rs 2 lakh tax limit on deduction on housing loan interest under Section 24 of the Income Tax Act, to at least Rs 5 lakh. This could instantly infuse robust demand for housing, especially in the affordable and mid-segment categories.

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Revision in deductions for home loan principal repayment over and above the existing 80C limit

A relief in personal income tax, either through a cut in tax rates or though revised tax slabs, would be a welcome move, especially since the last increase in the deduction limit under Section 80C of the Income Tax Act to Rs 1.5 lakh a year, which took place in 2014. The time is certainly ripe for a further upward revision, but there is no denying that the government currently lacks the elbow room for such a move.

Instead, it may focus on providing more incentives to the MSMEs and SMEs struggling after the pandemic. Also, the government's spending on infrastructure may get a further boost.

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Change in the affordable housing criteria to extend the benefit of additional deductions to more buyers

According to the Ministry of Housing and Urban Poverty Alleviation, affordable housing is defined on the basis of property size, price and the buyer’s income. For instance, affordable housing is a unit with carpet area up to 90 square metres in non-metropolitan cities and towns, and 60 square metres in major cities, valued up to Rs 45 lakh in both cases.

The government should consider revising city-wise pricing parameters to include a broader customer base. The size of units, according to its definition (60 square metres of carpet area) is relatively appropriate, but the prices of units (up to Rs 45 lakh) are not viable across most cities. For instance, a budget of up to Rs 45 lakh is far too low in case of a city like Mumbai, and needs to be increased to at least Rs 85 lakh.

For other top cities, the budget range should be increased to at least Rs 60-65 Lakh. With this revision, more homes will fall within the affordable price tag, allowing more buyers to avail of multiple benefits like lower GST rates at one percent without input tax credit (ITC), government subsidies and the tax deduction of a total of Rs 3.5 lakh on interest repayment of home loans.

Also, more of government-controlled land needs to be unlocked to create affordable housing. Some portions of land across cities falling under the Department of Heavy Industries, Indian Railways, Port Trusts etc. can be released by respective government bodies. Increased availability of low-cost land will also help rein in property prices significantly.

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Extend benefits of affordable housing

Affordable and rental housing got a big boost in the last Union Budget, with the government extending the period for extra deduction of Rs 1.5 lakh for loans up to March 31, 2022. A further extension of this benefit will ensure buoyant demand for affordable housing in 2022.

Further, extending the tax holiday for affordable housing projects by another year will help in bringing in more of new supply within this segment.

According to ANAROCK research, affordable housing in 2021 accounted for approximately 26 percent of the overall supply across the top seven cities. A tax exemption for Affordable Rental Housing Complexes (ARHCs) will also help stave off labour shortage challenges in case of any disruptions in the future.