List of reforms proposed for the development of the sector

The Indian real estate sector is a crucible of economic growth and employment. The sector is at a crossroads as the government prepares to present the Union Budget. While the Indian housing industry has enormous potential, it still faces many hurdles.

To generate more growth and meet the housing needs of a growing population, especially in the low- and middle-income segments, the budget must include tax breaks, regulatory reforms and financial relief measures.

Affordable Middle Income Housing: Affordable middle income housing is the backbone of the real estate industry, meeting the urgent housing needs of the vast LIG and middle class population. To significantly improve this section, the following strategies are crucial:

Interest Subsidy and Home Loan Interest Subsidy: Expanding the scope of the Pradhan Mantri Awas Yojana (PMAY) and raising the interest subsidy on home loans is the need of the hour. This will make home ownership more affordable. Reducing interest rates will also reduce the financial stress faced by aspiring home buyers.

Enhanced Credit-Linked Subsidies (CLSS) Scheme: Expanding and improving CLSS could provide financial relief to middle-income homebuyers. Both the income eligibility threshold and the grant amount should be increased.

Single Window for Clearance of Affordable Housing: A single window system for clearance of housing units under budget housing projects will significantly streamline and simplify the extremely complicated approval process. This in turn would help reduce delays in possession of such units and reduce overall costs.

Tax breaks to reduce the burden: Tax breaks are key to making home ownership more affordable and can also encourage builders to take on new affordable housing projects:

Increase in tax deduction on home loan interest: Increase in the tax deduction limit under Section 24(b) of the IT Act is long pending and is the need of the hour. The deduction limit should be increased from the current Rs 2 lakh to at least Rs 3 lakh or even more.

Reduce the transaction tax: The government can encourage state governments to reduce the transaction tax rates, which make up a significant portion of the cost of owning a home. Even temporarily reducing or eliminating the transaction tax for affordable and lower-middle-income housing can boost demand and sales.

First-time buyer incentives: First-time home buyers should get additional measures to boost their confidence. For example, the government may increase the limit of deductions under Section 80EE and 80EEA for first-time buyers.

GST reforms for developers: GST rates applicable to construction materials and services can help reduce overall project costs for construction companies. Moreover, reduced GST rate for affordable housing projects would help attract more builders to this important segment and implement such projects.

Policy measures and provisions

In addition to direct financial incentives, the budget can introduce many policy initiatives that will indirectly improve sentiment in the housing sector:

Rapid Infrastructure: This government is certainly committed to developing infrastructure such as roads and public transport such as metros and railways. This helps expand metropolitan areas and promotes affordable housing, which tends to be built in developing areas where land is cheaper and infrastructure is still catching up. However, we need much faster implementation of such projects so that connectivity to such areas improves at a faster pace.

Land reforms: Simplifying the overall land acquisition process will help developers speed up the delivery of new projects. There is a clear need for an open and effective land records management system that will reduce disputes and therefore project delays.

Better access to finance: Developers always need access to finance, but smaller and medium players are at a greater disadvantage than the big players. The budget could consider creating a separate real estate investment fund, as well as credit guarantees for such builders to improve their liquidity.

Rental Housing Policy: Rental housing would benefit from favorable policies and tax incentives for those who cannot afford to buy homes. Implementing a model rental law and providing tax relief on rental income would help a lot.

The Union Budget is the perfect platform and opportunity for the government to support Housing for All programmes. While the original deadline of 2022 was not met, it is not too late to revive this dream and make it a concrete reality. The Indian real estate sector is certainly looking forward to such growth for both home buyers and builders.

(The author is managing director of Pharande Spaces)