The impact of the novel Coronavirus on Indian real estate has been unprecedented. In the first three months of its outbreak, it brought construction activities to a halt and significantly eroded the market of its potential buyer-base. The real estate sector touched the lowest of lows during the almost three-month-long nationwide lockdown. While construction activities came to a sudden halt, reverse migration of labourers made the resumption of work even difficult. Developers faced severe liquidity constraints and homebuyers lost a significant appetite to buy a property after the job market got gravely bitten. Home sales and new property launches suffered a great deal as the nation struggled to battle the pandemic.
To handhold, the real estate and construction sector, the Central Government rolled out certain policy measures at regular intervals. The latest being the Union Budget 2021-22 announcements. The Union government has announced a slew of facilitative measures to revive the ailing sector.
Stimulus packages 1.0, 2.0 and 3.0 during 2020
2020 was a tough and unprecedented year for the Indian residential real estate sector. However, the government appropriately stimulated the economy and the sector. As part of the stimulus package aimed in improving the economy, the Government of India introduced the Atmanirbhar Bharat Abhiyan package which included measures towards improving the state of the affairs in the Real Estate sector as well.
In order to safeguard the interest of all stakeholders as projects stand the risk of defaulting on RERA timelines due to adverse impact due to Covid-19, Government announced to treat the COVID-19 related disruption as force majeure under Real Estate (Regulation and Development) Act provision and advised all States and UTs and their regulatory authorities to extend the registration and completion date by 6 months for all RERA registered projects expiring on or after March 25, 2020, without individual applications. This measure was to de-stress real estate developers and ensure completion of projects so that the home buyers are able to get delivery of their booked houses.
The Credit-Linked Subsidy Scheme (CLSS) under the Pradhan Mantri Awas Yojana (PMAY) for the middle class (MIG segment with annual income of Rs 6 lakhs to Rs 18 lakhs), was extended till March 31, 2021.
An additional outlay of Rs 18,000 crore was announced for Prime Minister Awas Yojana (PMAY Urban). This was meant to support the objective of Housing for All by 2022 with an aim to start work on 12 lakh houses as well as complete 18 lakh houses. The additional outlay was over and above the Rs 8,000 crore already provided in the Budget 2020.
Income Tax rules were also eased to allow the sale of primary residential units of up to Rs 2 crore value below the circle rate. Only a 10 percent difference between the circle rate and the agreement value was allowed earlier. The differential was increased to 20 percent for the period up to 30 June, 2021 for only primary sale of residential units of value up to Rs 2 crore, in order to boost the residential real estate sector. This measure was also aimed to reduce hardships faced by both home-buyers and developers and help in clearing the unsold inventory.
Other initiatives and incentives
Last year, the Government rolled out several policy measures aimed at boosting investment activity in the real estate sector. For instance, In October 2020, the Ministry of Housing and Urban Affairs (MoHUA) launched an affordable rental housing complex portal.
In the same month, on October 27, 2020, the government announced the application of Real Estate (Regulation & Development) Act in the union territory of Jammu & Kashmir. This has paved the way for any Indian citizen to buy non-agricultural land and property, as opposed to the eligibility of only local residents earlier.
Further, In order to revive around 1,600 stalled housing projects across top cities in the country, the Union Cabinet approved the setting up of Rs. 25,000 crore (US$ 3.58 billion) alternative investment fund (AIF).
Union Budget FY21
The Union Budget 2021-22, presented by Finance Minister on February 1, 2021, secures a great scope for progress in the real estate sector. While the Budget did not meet all the expectations of the sector, it did address specific concerns. It was quite an effective budget in terms of 'Affordable Housing' & 'Housing for all' for the substantial portion of the population.
The finance minister has announced the extension of the time limit to avail the benefits on purchase of affordable housing by one more year, to March 31, 2022. Under this provision, a first-time homebuyer can claim deduction up to Rs 1. 5 lakh on the interest component of home loans above the allowed deduction of Rs 2 lakh under Section 24(B), provided the purchase value of the house is sub Rs 45 lakh. This will likely stir demand for housing in this category, especially in Tier-II and III cities, and aid the Housing for All (HFA) targets.
On part of the Real Estate Developer, the Government also extended the Tax holiday benefit for affordable housing projects for an additional 1 year i.e. till 31/03/2022. The developers can claim a 100 percent deduction of profits from an affordable housing project under Section 80IBA, subject to some riders, such as carpet area norms and upper price limits. This was also originally introduced in 2016 and was to lapse in Mar 2021. The extension has now been provided up to Mar 2022. This extension of tax holiday is likely to propel new launches in the affordable segment in the near future. The past year witnessed a significant reduction in new launches owing to the pandemic driven shortage of labour force and other constraints.
To promote the supply of affordable rental housing for migrant workers, the Finance Minister proposed tax exemption for 'Affordable Rental Housing Projects'. Budget 2021 provided for 100 percent exemption of taxes on profits for Central Government notified rental housing projects. This should give a strong impetus to the migrant workers and stir demand in the rental housing market.
On the investment front, to boost infusion of funds, the Finance Minister has introduced exemption from TDS on the dividend payments of the investors investing under the Real Estate Infrastructure Trusts (REIT's) and Infrastructure Investment Trusts (InVIT's) which will act as a stimulus to increase investment in REIT's and InVIT's. The FM further proposed to allow the entry of foreign portfolio investors into debt financing of REITs and InvITs. This will make REITs and InvITs a more lucrative investment for the common man, and help bring more private participation and flow of funds into the real estate and infrastructure sector.
