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Opportunity To Build On The Gains Of 2021

With the economy well on its growth trajectory despite fresh Covid disruptions, there is a clear case for the budget to take all enabling measures to provide a booster dose to real estate

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The budget for 2022-23 provides an opportunity to the government to build on the gains of 2021, sustaining the momentum for recovery and growth of the real estate sector. It should be playing a pivotal role in fulfilling the growth trajectory across real estate and the overall economy.

The year 2021 was a year of recovery. Despite the massive setback by the second wave of Covid-19 pandemic, residential real estate made a remarkable turnaround both in terms of sales and new launches, nearing pre-Covid levels. With the economy well on its growth trajectory despite fresh Covid disruptions and the latest PwC CEO poll saying that the economy will emerge stronger, there is a clear case for the budget to take all enabling measures to provide a booster dose to real estate, especially when the government is already putting too much emphasis on real estate, housing and infrastructure, in order to boost investment and economic growth.

For a capital-intensive real estate sector, lack of adequate funding has been its biggest bane. The dearth of required capital has resulted in a large number of housing projects lying incomplete across the country. A well over 4 lakh houses are either incomplete or stalled because of liquidity crunch. The funding crisis has also been contributing to the massive inventory overhang. According to a recent Anarock report, the average inventory overhang in top seven cities is still at 32 months. In Delhi-NCR, it is much higher at 49 months. This is proving to be a dampener for the prospective home buyers who have already been wary of investing in under construction properties. They are preferring to buy ready to move (RTM) homes or at the most under construction homes of big branded and credible developers. It is important to boost home buyers' confidence in under-construction properties for ensuring healthy recovery and growth.

The home buyers' confidence can be boosted by speeding up the completion of stalled/partially finished projects by stepping up last mile funding. Considering that the government backed Rs 25,000 crore SWAMIH fund had by October 2021 end given its final approval to 95 projects sanctioning more than Rs 9,500 crore to complete 57,700 homes, there is a need to fast-track this funding. Besides, there is a need to offer incentives to private players to provide the much-needed capital for completion of pending projects. 

Real estate developers also need funding to launch new projects, especially when in post-Covid scenario, home buyers  are looking up to new projects  which can meet  their  requirements  of  spacious green developments with facilities like home office , terrace garden etc.  for higher lifestyle and health safety quotient.  


Delayed clearances also add to the funding woes of developers as they result in time and cost overruns. The online mechanism for project sanctions has provided only a partial relief. Therefore, in view of this, there is a strong case for a single window system to fast-track approvals. The industry status for real estate along with a single window mechanism will also help in ensuring ease of acquiring capital for real estate projects, boosting FDI inflows. REITS have proved to be a major source of funding for the commercial real estate developers. REITs should be permitted for residential real estate  

Affordable housing has been playing a pivotal role towards achieving the goal of 'Housing for All'.  Even in the post-pandemic times, affordable and mid-priced housing are driving the recovery. In the light of this, the budget should ensure that this momentum is maintained to ensure that the homes stay affordable. For this, not just the incentives already provided to affordable housing need to be continued, even new incentives need to be provided on both demand and supply side. On the supply side, the income tax incentive to developers engaged in affordable housing, should be extended beyond March 31, 2022. The infrastructure status accorded to affordable housing is only on paper. It should be implemented in true spirit to ensure that developers of affordable housing get cheaper funding and land to stay relevant. Along with the developers of affordable housing, sops should also be provided to the developers of affordable rental housing. 

On the demand side, the standard deduction of Rs 2 lakh on interest paid on home loans should be hiked substantially to help more home aspirants to buy their dream home.  The interest subsidy to first-time buyers of affordable housing under PMAY should be extended beyond March 31, 2022. The Rs 45 lakh home price limit to avail benefits of interest subsidy should be increased to benefit more home buyers. The transaction costs also need to be rationalized to further boost home affordability. GST on under construction projects should be waived off or at least reduced. This will not only boost the overall housing sales but also help draw prospective home buyers towards under construction homes as besides development risk, one major reason for home seekers to opt for RTM homes is zero GST. There is an immediate need to provide transaction cost relief to NRI home buyers because of the high TDS of over 28 per cent, especially as NRIs are driving the residential real estate market due to the dual advantage of rupee depreciation and low interest rates. There is also a strong case for drastically cutting GST on raw materials to boost affordability and push home ownership.   

For India to achieve the vision of a 5 trillion economy, the budget must give thrust to the labour-intensive real estate sector which boosts the economy as it supports employment with its linkages to 200 ancillary industries including SMEs and MSMEs.  


Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


Tags assigned to this article:
Union Budget 2022 Union Budget 2022-23

Prashant Solomon

The author is MD, Chintels India & Hon. Treasurer, CREDAI NCR

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