Will it bring tax relief to the housing sector?

The real estate industry in India holds a lot of importance for various reasons. With the growing demand for housing, there is a need for additional residential, office and commercial properties. Real estate development caters to this demand and contributes to the landscape of our urban areas. Given its importance, it is no wonder that the real estate industry eagerly awaits the annual Union Budget. The sector is optimistic about the upcoming Union Budget for 2024-25, which is expected to be presented by the Finance Minister in July.

The budget may introduce changes to tax rules on property acquisition, mortgage relief or infrastructure initiatives that could potentially impact the development of the real estate market.

Housing Sector Expectations in the 2024 Budget

According to experts, there is a strong expectation of tax breaks and other measures to improve public sentiment. They also emphasize that the future of the industry as a whole relies on unfettered infrastructure development to raise urban living standards and promote the development of new areas.

Budget expectations regarding the status of the industry

Experts also highlight the long-standing demand for “industry status” from the real estate sector. The budget is also the subject of other aspirations. Experts are optimistic that the affordable housing segment, which has been in steady decline since the pandemic, will be revived by implementing “real” measures.

The Indian housing sector maintained a positive outlook throughout FY2024, with top seven cities recording new peaks in home sales and new launches. In FY23-24, sales peaked at around 4.93 lakh units and launches were 4.47 lakh units. However, this momentum needs to continue in the future, with the current growth trajectory tilted towards mid- and high-end housing.

This momentum cannot be sustained solely on the basis of higher-priced homes as housing affordability continues to deteriorate in light of the exceptional housing requirements of lower-income groups in India. The share of affordable housing sales has declined significantly post-COVID-19. According to the study, it has fallen from over 26% in 2022 and over 38% in 2019 to around 20% in Q1 2024. The share of this segment in the total housing supply in the top 7 cities, which was almost 40% in 2019, has fallen to 18% in Q1 2024 due to low demand.

Over the past two years, many of the incentives previously given to buyers and developers of affordable housing have expired. This key segment requires the implementation of high-impact measures, such as tax breaks, to encourage developers to prioritize affordable housing and increase affordability for buyers.

Additional measures to boost the social housing market include:

1. Credit Linked Subsidy Scheme under PMAY

In order to encourage first-time affordable home buyers in urban areas, this EWS/LIG scheme, which expired in 2022, should be reinstated to stimulate demand in the sector. Earlier, CLSS was available for home loans to EWS/LIG buyers in new construction and addition of rooms, kitchen, toilets and other amenities to existing flats, subject to criteria specified in government guidelines.

Further, this subsidy is available to all ‘kaccha’ houses converted into ‘pucca’ houses under the PMAY (rural) scheme, provided they meet the eligibility criteria.

2. Restore 100% tax relief for developers building affordable housing.

In a bid to increase housing supply and encourage developers to build more affordable units, the government may reinstate the 100% Tax Holiday benefit that was earlier provided to them under Section 80-IBA of the Finance Act, 2016. This section provides a significant tax break on profits generated by development and construction of affordable housing projects.

3. Change the definition of affordable housing to extend the benefits of additional deductions to a broader group of purchasers.

Affordable housing is defined by the Ministry of Housing and Urban Poverty Alleviation according to the size of the property, price and income of the buyer. For example, affordable housing is a house or flat of up to 90 sq m in cities and towns outside the metropolitan area and 60 sq m in large cities, worth up to Rs 45 lakh for both. On the other hand, the central bank’s definition is based on loans that banks provide to individuals for the purpose of buying flats or building houses.

Experts say the government should seriously consider revising house prices under the social housing budget, keeping in mind the unique market dynamics of each city. The current definition specifies that a floor area of ​​60 sq m is adequate for units. However, the cost of units (up to Rs 45 lakh) is not economically viable in most cities.

For example, a budget of Rs 45 lakh is not feasible in a city like Mumbai. It should be increased to at least Rs 85 lakh. Similarly, the budget should be increased to a minimum of Rs 60-65 lakh in other prominent cities. More homes would qualify for affordability as a result of these price revisions, allowing more buyers to avail benefits like lower GST rates of 1% without ITC and government subsidies.