The government should consider giving the real estate sector, an "industry status", as availing it will help developers raise money at lower rates and cut down their cost of capital
While 2020 began as a year with the real estate sector witnessing myriad issues, even before the pandemic and subsequent lockdowns, the sector was witnessing a slump in performance.
Fast forward eight months from the date of the announcement of the first lockdown in March, the real estate sector is one of the fastest recovering sectors in the country. There was a rebound seen in the commercial real estate segment too, as offices looked to re-open and asked their workforce to report to workplaces.
A point to note here is that commercial real estate leasing is generally planned for long durations, therefore a few quarters of bad performance does not necessarily translate to poor performance for the segment.
The residential real estate segment saw a revival due to exciting offers from developers, with states like Maharashtra moving a step ahead to revive the sector by announcing a reduction in stamp duty from 5% to 2% till December 2020.
Also Read: Budget 2021
This announcement can alone result in a revival of the housing market in the cities of Mumbai and Pune, which saw record levels of house registrations from October-December 2020.
Importance of Union budget 2021
Union budgets in this nation have always found a way to raise expectations before their announcement and raise doubts and questions post it.
The union budget is always connected with reform measures, important policy announcements, tweaks in taxation policies. Despite the announcement of a stimulus package as large as Rs 20 lakh crore in May 2020, the Indian economy slipped into a recession.
The slide in the growth rate was primarily due to the stringent lockdown imposed across the country in March, and unlock measures were initiated only from July-August onwards.
Maharashtra state government played a pivotal role in providing relief to the industry with the reduction in stamp duty rate in August.
Post this move Maharashtra's real estate sector began its uphill road to recovery. This is the importance of a policy impact on demand and industry sentiment. Likewise, Union Budget 2021 could have a far-reaching impact on the industry and demand dynamics. This opportunity should be used to provide maximum relief to the industry and help keep sentiments in check.
On top of the list are measures like continuing with the current low interest and easy liquidity regime, which are major criteria to boost demand.
Low-interest rates are a direct stimulus for investment in real estate. The Budget 2021 is expected to deliver on measures to boost demand for the industry like enhance the limit of deduction under section 80C of income tax for principal repayment on home loans, and a separate exemption for principal repayment on home loans to incentivise investment in real estate.
When it comes to investment in REITs, they have become a favored route to raise funds for developers with rent-bearing commercial properties. Investments of up to Rs 50,000 in REITs should be allowed as a deduction under Section 80C, also the holding period for REITs to qualify for long-term capital gain should be reduced from 36 months to 12 months, a step which will spur retail investment in a value-creating instrument like REITs.
Another requirement would be a further enhancement in the ease of doing business with limited approvals required to develop a project within a defined timeframe.
Lastly, Finance Minister Nirmala Sitharaman should extend the current schemes to avail benefits under PMAY CLSS beyond March 2021, and differential pricing between circle rate and agreement value beyond June 2021, these are the steps that will boost demand for real estate and help achieve a faster recovery.
The stressed asset fund to revive stalled projects has progressed well and the government should consider increasing allocations to these funds. A larger fund will also be able to financially support a wider variety of projects, as a temporary substitute to NBFCs.
Lastly, the government should also consider giving the real estate sector, an "industry status", as availing it will help developers raise money at lower rates and cut down their cost of capital. This may further translate to lower-prices for real estate.
(The author is a CEO of Azlo Realty.)