The real estate sector in India has been growing steadily, with home values witnessing a consistent rise. However, many potential homebuyers are finding it challenging to acquire a property due to several reasons. With the Finance Minister Nirmala Sitharaman set to present the Interim Budget 2024 on February 1, the homebuyer community has come up with a wishlist, hoping to see their requests addressed. They are looking for tax benefits, more flexible repayment facilities, and other measures that can make homeownership more accessible and affordable.

The Reserve Bank of India (RBI) has been maintaining a consistent repo rate in the current Financial Year (FY) 2023, which has provided immense relief to homebuyers. The RBI has projected a Gross Domestic Product (GDP) growth rate of seven percent in the current FY, and the World Economic Forum (WEF) expects India to be the fastest-growing economy in 2024-25. The real estate sector is expected to be a significant contributor to this growth. As an essential sector of the Indian economy, it is crucial that the Interim Budget 2024 considers the requirements of real estate’s key customers, i.e., homebuyers.

Expectations of Buyers’ 

Friendly home loan policies

In the previous year, the Reserve Bank of India (RBI) maintained the repo rate at 6.5 percent which helped to stabilize the loan rates and created a favorable environment for the homebuyers. This year, homebuyers are still looking forward to stable home loan rates and affordable EMIs. The RBI’s decision played a crucial role in providing financial predictability and affordability in the housing market. As a result, the demand for homeownership has increased and people are hoping for similar favorable conditions in the new year. The stability in interest rates is a reflection of the growing aspiration among people to own a house.

Tax benefits for homebuyers

  • Homebuyers in India are expecting a revision in the limit on tax deduction on interest paid on home loans under Section 24 (b). Currently, the limit is set at Rs 2 lakh, but industry experts suggest that it should be increased to Rs 3-4 lakh for self-occupied properties. However, for let-out properties, the limit can be removed altogether. Niranjan Hiranandani, Vice Chairman of National Real Estate Development Council (NAREDCO), has commented that policy measures such as an increase in income tax deduction on home loans up to Rs 5 lakh can help boost economic growth and make it the ‘Year of Implementation.’
  • To encourage individuals to view real estate as an investment, it is essential to provide tax relief on second or subsequent home purchases. As most homebuyers prefer availing home loans, it is recommended to increase the tax deductions on repayment of the principal amount under Section 80C from the current limit of Rs 1.5 lakh. Additionally, the existing capping of Rs 1,50,000 and Rs 50,000 for interest exemptions under 80EEA and 80EE (applicable to first-time homebuyers in affordable housing) should be raised to further incentivize home buying. Moreover, reintroducing tax exemptions for first-time homebuyers, particularly in the affordable housing segment, should also be taken into consideration.
  • Murali Malayappan, Chairman and Managing Director of Shriram Properties, has suggested some measures to boost the housing demand and supply in India. According to him, incentivizing housing purchase by liberalizing Section 24(b) of the Income Tax Act, 1961, deduction on housing loan interest under Section 80C, and rental income exemptions are some key steps that could significantly enhance the housing sector. These measures could encourage more people to invest in housing, leading to a surge in demand, and in turn, increase the supply of affordable housing in the country.
  • Currently, the construction industry in India faces the burden of paying Goods and Services Tax (GST) on individual raw materials. This results in a significant increase in building costs, which ultimately leads to higher prices for homebuyers. However, the implementation of a single GST for all construction materials can help in reducing property prices in the long term. In addition, it will also bring about more transparency in the process and fast-track stalled projects that have suffered due to cost overruns. Farshid Cooper, Managing Director of Spenta Corporation, has pointed out that it is crucial to pay attention to the stalled and pending projects. As these projects begin to see the light of day, the sector will have increased liquidity, and the stuck capital can be freed up for investment.”
  • Affordable housing developers were previously provided with a tax holiday which ended with the conclusion of FY 2021-22. To further incentivize homebuyers to invest in affordable housing, it is suggested that the tax holiday be reinstated. This would allow for better rebates and more lucrative schemes for potential homebuyers. The reintroduction of a 100 percent tax holiday for affordable housing projects under Section 80IBA would be an effective way to achieve this goal.

Expanding the price cap on affordable housing

Currently, affordable housing is defined as residential properties that are priced at or below Rs 45 lakh. However, due to inflation and the impact of real estate on the economy, there is a need to revise this upper limit. To encourage homebuyers and promote the growth of the real estate sector, a cap of Rs 50-60 lakh is recommended, which would provide various benefits. To make it easier for homebuyers to access affordable financing options, it is essential to standardize the definition of “Affordable Housing” across various government schemes and financial institutions.

Re-introduction of subvention schemes

The subvention scheme, which was previously banned, allowed homebuyers to avail loans without having to pay the interest on the availed credit immediately. This was especially beneficial for first-time homebuyers who had to bear the burden of both monthly rentals and EMIs simultaneously. With the lifting of the ban on subvention, homebuyers can now invest in properties with ease as they will only be required to pay EMIs after the possession of the property. This is expected to motivate homebuyers to invest in properties and is likely to boost the real estate sector.

PMAY fund allocation revision

The Pradhan Mantri Awas Yojana (PMAY) was launched in 2015 with the aim of providing affordable housing for all by the end of 2022. As the program nears its end, the government has increased the budget for PMAY by 66 percent to Rs 79,000 crore for the fiscal year 2024. Out of this allocation, Rs 25,103 crore has been earmarked specifically for PMAY Urban, with the goal of accelerating the Housing for All initiative.

However, the demand for affordable housing still exceeds the supply, and there is a need for incentives and subsidies to boost affordable housing projects. One possible solution is to provide tax incentives to developers who focus on affordable housing, which can encourage greater supply to address the growing demand in both urban and rural areas. Additionally, increasing the annual allocation for PMAY schemes could also be an effective way to drive demand within the affordable housing segment.

The government could also focus on increasing the fund allotment through the SWAMIH fund, which can improve liquidity in stalled residential projects.

As the Finance Minister, Nirmala Sitharaman, prepares to present the interim Union Budget 2024 on February 1, 2024, the real estate sector hopes for policies that will promote realty growth and economic development at large. The budget has the potential to shape the real estate industry into one that is both resilient and adaptable, making a substantial contribution to India’s economic growth. As the Government reveals its fiscal plans, the real estate sector is ready to embrace the opportunities presented.

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