Real Estate Pins Hope on Union Budget 2022-23

The residential sector witnessed a strong comeback in 2021, with housing sales in the top 7 cities rebounding to 90% of pre-COVID levels and new launches reaching 2019 levels. While the housing sector's prospects generally look upbeat in 2022, it remains to be seen to what extent, if any, the new COVID-19 variant Omicron impacts real estate activity.

So far, it has not had any seriously dampening impact. However, the sentiment revival in residential real estate during the worst parts of the first and second waves hinged heavily on policy support. The RBI and the government have proactively aided the sector with various demand boosters. The stamp duty cuts, tax benefits extension on affordable housing in last year’s budget were strong moves that made a difference.

Despite rising inflation, the RBI kept the repo rates unchanged for the last nine consecutive bi-monthly monetary policies, thereby extending the benefit of lower interest rates to homebuyers. These measures helped the housing sector, which plays a significant role in the overall economy, to maintain an even keel during a very rough phase.

The residential sector looks forward to further support beyond the mainstay demands of industry status, easy availability of finance, and GST rates reduction. With regards to the upcoming Union Budget 2022-23, some of the significant moves which would help spur up residential demand include:

•   Home loan deduction limit (u/s 24)

There is a need to hike the INR 2 lakh tax rebate on housing loan interest rates under Section 24 of the Income Tax Act to at least INR 5 Lakh. This could instantly infuse robust demand for housing, especially in the affordable and mid-segment categories. 

•   Deductions for home loan principal repayment, over and above the existing 80C

Personal tax relief, either via a cut in tax rates or revised tax slabs, would be a welcome move - especially since the last increase in the deduction limit under Section 80C (to INR 1.5 lakh a year) took place in 2014. The time is certainly ripe for a further upward revision, but there is no denying that the government currently lacks the elbow space for such a move. Instead, it may focus on providing more incentives to MSMEs and SMEs struggling post the pandemic. Also, the government spending on infrastructure may further get a boost.

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•  Redefine the definition of affordable housing criteria to extend the benefit of additional deductions to more buyers

According to the Ministry of Housing and Urban Poverty Alleviation, affordable housing is defined based on the property size, its price, and the buyer’s income. For instance, affordable housing is a unit with carpet area up to 90 sq. m. in non-metropolitan cities and towns, and 60 sq. m. in major cities and valued up to INR 45 lakh for both. The central bank’s definition, on the other hand, is based on the loans given by banks to people for building homes of buying apartments.

The government should seriously consider revising the city-wise pricing parameters to include a broader customer base under the benefits of extended to this segment. While the size of units as per its definition (60 sq. m. carpet area) is relatively appropriate, prices of units (up to INR 45 lakh) are not viable across most cities. For instance, a