Initiatives we can expect from the Interim Budget 2019 for the real estate sector

Before every annual budget, the real estate sector trots out a highly optimistic (and unrealistic) wish-list to the Finance Ministry. Whether the industry actually expects the upcoming budget to cure all its woes, with a wave of its magic wand, is beside the point. Unrealistic expectations – many completely outside the purview of the Finance Ministry – have become the norm. Single-window clearance, industry status and hiked tax exemptions limits, which will miraculously revive demand for properties, have become the usual suspects in such wish-lists. Under such circumstances, there is a need to be rational in our expectations from an interim budget, which is announced shortly before the general elections.

Though the larger ‘acche din’ premise is debated to the present day, the first union budget under the Modi government in 2014, was certainly a harbinger of change for buyers and builders. Tax payers’ exemption limit was increased after a decade of forlorn waiting. During the government’s entire term, affordable housing got the maximum attention via infrastructure status for this specific segment and various other sops and incentives. The subsequent budgets were concoctions of positives, negatives and non-events for real estate.

Sops for real estate in an interim budget

While outlining what the real estate sector can realistically expect from union budget 2019-20, the fact that this is an interim budget cannot be wished away. In such budgets, the incumbent government usually tries to make a strong electoral pitch, by offering tax sops or promises of welfare schemes. Previous governments have candidly done the same, but all have to follow a model code limit. This year, we must temper our optimism with realism and not expect major boosts for the real estate sector, in the interim budget.

• The interim budget may focus on wooing voters, rather than boosting specific industries.
• Shortfalls in the PMAY scheme and employment, must be addressed.
• Funding announcements without implementation guidelines, will not suffice.

That said, there are certainly electoral parameters to consider – for the common man (vote-bearing home buyer) tax reliefs will count, while for industry players (major contributors to election campaigns) alleviation of the severe liquidity crisis is high on the wish-list.

Interim budget 2019: Tax benefits for home buyers

This is, of course, a more or less perennial expectation. In order to woo middle-class taxpayers (who live in perpetual hope of further relief), the government should (and quite possibly may) offer tax benefits by way of:

1. Reduction in income tax slabs and/or
2. Higher relief on housing loan rates and/or
3. Increase in the deduction limit under Section 80C from the current Rs 1.5 lakhs a year.

The fact that the exemption limit (under Section 80C) was raised last in 2014 after a decade-long hiatus, raises high expectations that this route may be revisited in this budget. It is certainly an assured crowd-pleaser, which matters in the electoral year. However, there is no getting around the fact that raising exemption limits comes at a concurrent cost to the exchequer. A fine balancing act is definitely in order here.

Refinancing of NBFCs

For the industry at large, one of the most critical steps that this budget can take, is to increase the finance limits for NBFCs. NBFCs constituted more than 50 per cent of developers’ finance in 2018, as against 30 per cent in 2011. The NBFC crisis, after the default of IL&FS in September 2018, spelt doom for real estate players and the ensuing fund crunch resulted in stalled projects all around. The government must revive the sector, by pumping in more money into NBFCs who lend to developers.

Focus on infrastructure, to drive growth

The current government’s undisputed focus on infrastructure development, should spell good news for the real estate sector. Although generous funds were allocated for various highways projects in the previous budget, the real estate industry depends on faster road building, because improved connectivity is the lifeblood of the industry. Apart from that, the creation of more employment in the infrastructure sector can redeem the incumbent government’s well-documented shortfall on that front – again, an important electoral consideration.

Utilisation of funds allocated towards the PMAY scheme

As per the Ministry of Housing Affairs’ data, the total estimated investment under the Pradhan Mantri Awas Yojana (PMAY), as on January 2019, was Rs 3.87 lakh crores, of which approximately 27 per cent has been sanctioned by the central government while only 32 per cent of the sanctioned amount has been released so far. Evidently, despite the government’s concerted efforts to gain ground on its ‘Housing for All’ promise, the deficit is too large to ignore. For this year’s budget, making sweeping funding announcements will not suffice. These must be backed by a convincing game plan, to ensure that the allocated funds are utilised as specified, within a specified deadline. If not, such announcements will not yield positive sentiments and sentiment is everything in an election year.

Other initiatives we can expect from the interim budget 2019

• A GST rate cut, to boost housing sales further.
• Easing of the norms for REITs, on the eve of their deployment.

However, at the end of the day, the upcoming budget may focus squarely on wooing voters collectively, rather than boosting specific industries. In other words, one needs to be realistic and not overly optimistic.