Know Impact of Union Budget 2021 on Real Estate Sector

• @kw
• 08 Mar 2021

Market was expecting some additional benefits to revamp the real estate market post COVID-19 pandemic. But the budget disappointed the real estate players by not offering any new incentive. However, the budget 2021 offered extension of incentives for interest payment on affordable homes for another year, tax incentives for notified affordable rental housing and some tax relief for dividends received from REITS. The budget failed to address most of expectations the sector had especially after the impact of Covid-19. Experts in real estate sector feel that the Finance minister had very little scope and limited elbow room to make any big announcement for real estate sector due to heavy burden for fiscal deficit due to Covid-19 impact. Though market was expecting some step to counter liquidity crunch which included further reduction on home loan interest and relaxation in foreign direct investment on housing project .There is a long pending demand of industry status and GST input credit under construction property that could help to bring down the overall cost, resulting in reducing housing prices creating more demand. 

There are some positive side of the union budget announced in 2021 such as monetization of PSU land bank will bring large chunk of land in major cities, extension of tax exemption of affordable housing projects and additional interest deduction under section 80EEA are major relief to the real estate housing sector. However, there was no major announcement to boost the ailing real estate sector to mark-up contribution to GDP, which should have been considered as a major issue to bring necessary input in all economic activities. The budget did not emphasize to reduce TDS on co-working services. This would help clients to enjoy economical rates and help to have better flow in working capital. The government has not enabled co-working firms to claim input credits on work contract and construction services supplied, as detailed under GST provisions.

Real estate sector is the second biggest creator of jobs in India which is expected to contribute 10% of national GDP. Real estate sector is most crucial to accelerate economy and the finance minister announcement to generate investment push is a welcoming move. By 2025 , the real estate sector is geared up to achieve 13% of the country’s GDP — powered in large part by office spaces (27% growth, year on year), followed by retail and warehousing. Another praiseworthy move that will provide help to migrant workers is tax exemption for notified affordable rental housing projects, making rental homes more accessible for migrants. The budget further proposed to allow the entry of foreign portfolio investors into debt financing of REITs and InvITs.  (Real Estate Investment Trusts and Infrastructure Investment Trusts). 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. The Union budget 2021 has also allowed few indirect support measures to inject funds in infrastructure development which will help capital appreciation on properties where infrastructure projects will come up. 

One of the longest-running hopes of the sector has been receiving industry status. This would impart three huge benefits: (1) acquiring loans at lower interest rates, (2) attracting equity investment and, (3) enabling developers to refinance debts. Never has this been more crucial than now, when the real estate sector is in dire need of liquidity and relief from pandemic-inflicted setbacks. However, we have seen that even though the financial market showed a depressing trend, the real estate commercial sector bounced back by Q3, where the net absorption of commercial property has increased by 63%, while new completions grew by 59%. The commercial reality is now under fast growth track which will boost the economy greatly in near future. This will have multiplier effect on the economy. Another long-standing hope of the sector is the re-introduction of the Input Tax Credit (ITC) and other GST reforms. While the Budget may have been a mixed bag for the sector, one hopes that the government will announce further stimulus measures in the near future.