Budget 2020-2021 Implications On Real Estate

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Focusing more on long-term infrastructure and industrial development, the budget 2020 did not provide direct positive implications for the real estate sector. Last year, tax sops, GST cuts (under construction flats) and INR 25000 crore last-mile fund for stalled projects were key measures introduced, but this year’s budget was different. The market’s reaction to the real estate budget wasn’t favourable as key initiatives such as the liquidity crisis and a one-time rollover of loans, weren’t addressed.

“While the Budget 2020-2021 focuses on a more long term vision for the real estate sector, it fails to address liquidity concerns or measures to boost housing sales. Some of the gains include support to the affordable housing sector, credit guarantee scheme for NBFCs and HFCs and infrastructure development. Having said that, the budget missed the much needed stimulus for the sector as it remained silent on resolving the current housing mess.” – Sameer Nayar, Founder and CEO of BuildSupply.

The Union budget 2020 proposed deeper investment into infrastructure and affordable housing development. While these measures may have long-term positive benefits to the real estate industry, but the short-term liquidity issues are still unaddressed.

New income tax brackets may provide long-term liquidity in the buyer domain, thereby enhancing consumer demand. However, the removal of key deductions, and the optional nature of the new framework may increase ambiguity. Minor short-term measures were introduced, such as an increase in real estate circle rate limits to 10%, and co-operative societies to be taxed at 22% plus 10% surcharge and 4% Cess.

Focus on affordable housing
The government renewed its focus on the affordable housing sector by providing a tax holiday extension. While there was no direct focus on reenergizing buyer sentiment, the liquidity concerns continued to prevail without major incentives offered under the real estate budget.

An extension of the benefits, under section 80EEA, will allow for an additional INR 1.5 lakhs interest deduction on home loans for first-time buyers. The benefit can be availed by homebuyers till 31 March 2021. Developers focusing on the affordable housing sector should see greater demand overall, while receiving tax holidays on profits generated.

Impact on warehousing, logistics and industrial development
The development of the National Logistics Policy will help in streamlining the extensive logistics network in the country while helping reduce costs across key transportation lines. This should have a long-term positive effect on the development of logistics hubs and industrial real estate, as the government continues to reduce cost of logistics to 9-10% of GDP.

The INR 27,300 crore allocated for the development and promotion of industry and commerce may have long-term positive results for the sector. Greater industrial growth may enhance demand for commercial real estate over time.

The budget’s focus on developing data centre parks may also provide long-term opportunities for key developers. The increasing demand for greater access to data may necessitate the development of multiple large-format parks across the country.

Greater allocation to infrastructure
Connectivity and infrastructural development were given greater attention in this year’s budget. Close to INR 1.7 lakh crores were allocated to the extensive transportation infrastructure in this country. This may have a long-term impact in the growth of the residential and commercial sectors in more remote regions in India.

Close to 6500 projects under the National Infrastructure Pipeline will receive greater access to capital, with key projects such as Delhi-Mumbai expressway and the Chennai-Bengaluru Expressway receiving greater attention.

The proposal of smart cities may also have long-term growth opportunities presented within the industrial and commercial space. The allocation of INR 6,450 crore under the “Smart Cities Mission”, may reinvigorate demand in these emerging cities, across key real estate segments. New smart homes, with an emphasis on green housing, may also be developed under these smart city initiatives.

A final word
In conclusion, the real estate industry expected bolder steps from the budget 2020 but there will not be any significant impact on the realty sector. The industry could have benefited significantly from more direct measures, including tax incentives for housing, greater funding for projects, and direct solutions for liquidity issues. Key deductions and GST considerations may also have increased demand within the domain, such as an increase in the current INR 2 lakh rebate on housing loan interest rates under Section 24.

References
https://www.financialexpress.com/budget/budget-2020-fm-sitharamans-big-boost-to-real-estate-sector/1850976/
https://economictimes.indiatimes.com/news/economy/policy/national-logistics-policy-to-be-released-soon-fm/articleshow/73836546.cms
https://www.businesstoday.in/union-budget-2020/market/budget-2020-auto-stocks-on-february-1-likely-to-rally-govt-housing-sector/story/395115.html
https://www.moneycontrol.com/news/business/real-estate/budget-2020-fm-proposes-5-new-smart-cities-4863761.html
https://www.hindustantimes.com/india-news/credit-guarantee-for-hfcs-nbfcs-proposed-in-budget-2020/story-vpWeazAIru4f3Z86F8y0XP.html
https://economictimes.indiatimes.com/wealth/real-estate/budget-fails-to-address-major-concerns-of-realty-sector-say-developers/articleshow/73845028.cms
https://www.financialexpress.com/budget/budget-2020-silent-on-key-demands-from-real-estate-sector/1853342/

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