The Union Budget 2021 has been one of the most awaited events this year. Slated to be ‘a budget like no other,’ it held a momentous bearing on the economy’s growth trajectory as it strove to steady itself after the Covid-19 pandemic and the subsequent economic upheaval.
A lot of expectations were riding on receiving substantial fiscal push to revitalise the economy in order to nudge it back onto a strong growth path, now that the vaccination program is underway.
The real estate sector, in particular, anticipated major measures to be announced in order to accelerate the pace of growth, which had slowed down owing to the pandemic as well as the
liquidity crunch in the sector.
While the government had introduced several fiscal and policy aids to alleviate the situation, the measures alone were not enough to bring the sector out of the woods, given the magnitude of the pandemic-induced economic turmoil.
As it turned out, there were several hits and misses in the Union Budget regarding the real estate sector. The following are some of the key highlights of the budget pertaining to the country’s real estate sector:
Continued impetus to affordable housing and affordable rental housing:
The government took the decision to extend the tax holiday on affordable housing for another year to maintain momentum in the residential sector. The additional deduction of Rs 1.5 lakh shall therefore be available for loans availed up till March 31, 2022, for the purchase of affordable housing.
This will provide further impetus to the residential market and lead to increased supply within the segment. The government also reiterated its commitment to affordable rental housing for migrant workers by allowing tax exemption for notified affordable rental housing projects.
Additionally, developers will now be able to sell existing primary stock below 20% circle rate values (with the safe harbour rule being extended to 20% from 10% for the specified primary residential units) without a levy of stamp duty. This would enable developers to exit their inventory below circle rates, thus enhancing sales.
Meanwhile, with several industries including Real Estate & construction being severely hit by a sharp increase in iron and steel prices, the budget has brought down customs duty uniformly to 7.5% on products of non-alloy, alloy, and stainless steels. It is expected that this move will help in bringing down construction costs in the sector.
Warehousing and logistics sector to gain from manufacturing sector push:
In order to enable the country’s manufacturing sector to achieve global competitiveness and usher in industrial growth, the budget announced a scheme of seven Mega Investment Textiles Parks with plug-and-play facility over the next three years. These would not only generate substantial employment in the country but will also open up prospects for new real estate development, including logistics and warehousing sector.
Creation of a Development Finance Institution (DFI) to augment investment in infrastructure:
The budget also proposed the setting up of a DFI capitalised with Rs 20,000 crore. This comes as a pertinent measure as there is an ardent need for infrastructure investment to help overcome pandemic-induced constraints, considering that very few commercial lenders are willing to take on the risk of funding the infrastructure sector now.
Relief for REITs, InvITs and startups:
Coming as a relief to taxpayers, advance-tax liability on dividend income shall arise only after the declaration/payment of dividend. Thus, the dividend paid to REITs and InvITs shall be exempt from TDS.
Further, the fact that suitable amendments would be carried out to enable debt financing of InVITs and REITs by foreign portfolio investors, will augur well for infrastructure and real estate sectors as this will ease access to finance.
Another significant announcement enhancing the country’s business environment is the extension of tax holiday for startups by one more year, while also proposing to reduce margin money requirement to 15%. The encouragement to startups is likely to trickle down as office space demand in the commercial real estate sphere.
Monetising of idle land assets:
In another positive step, idle assets such as surplus land with government ministries and PSUs would be monetised by way of direct sale or concession. This is expected to bring in substantial land supply in major cities. A Special Purpose Vehicle would be formed in order to carry out this activity.
Asset reconstruction and management companies for stressed assets of banks:
The announcement to set up asset reconstruction and management companies for stressed assets of banks is anticipated to come as a welcome relief to financial institutions dealing with bad loans related to the real estate sector, amongst others, in expediting resolution of stressed real estate assets.
Thus, while the realty fraternity harboured hopes of relief measures such as GST reforms and infrastructure status, the Union Budget 2021 focussed on strengthening infrastructure healthcare, infrastructure creation and augmenting foreign investment into the country. Although it strives to touch upon several key issues impacting the economy, it would be interesting to understand how the new developments unfurl.
(The writer is CEO-APAC, Vestian Global Workplace Services)