High Expectations for Tax Reliefs and Sentiment Boosters in the Indian Housing Sector

 As India’s urban landscape continues to evolve, the need for robust infrastructure deployment to support and enhance urban living standards is critical. The future of the overall industry hinges on these developments. In 2024, the Indian housing sector has been resilient and dynamic, with housing sales and new launches reaching unprecedented heights in the top seven cities. Sales hit an all-time high at approximately 4.93 lakh units in FY23-24, while 4.47 lakh units were launched. This positive trajectory, however, leans heavily towards mid-range and premium housing, necessitating continued momentum and balanced growth across all segments.

Challenges and Opportunities in Affordable Housing

The current growth momentum cannot rely solely on higher-priced homes, especially given the pressing housing needs of India’s lower-income groups. Over the past two years, several interest stimulants for affordable housing have expired, leading to stagnation in this crucial segment. To rejuvenate affordable housing, high-impact measures are necessary. These include tax breaks for developers to incentivize focus on affordable projects and for buyers to improve affordability.

Key initiatives could include reintroducing the 100 percent tax holiday for affordable housing developers and tweaking the criteria for affordable housing to widen the benefit scope for buyers. The government must seriously consider revising the pricing criteria for affordable homes, accounting for city-specific market dynamics. While the current definition pegs the unit size at 60 sq. m. carpet area, the price cap of Rs 45 lakh is often unviable in many cities, highlighting the need for modifications in budget housing standards.

Sustained Demand and Industry Expectations

According to a CRISIL report, the demand for residential real estate is projected to grow by 8-12 percent this fiscal year and the next, driven by favorable affordability and a shift towards premium housing. To support this growth and address the burgeoning housing needs, industry stakeholders are calling for significant policy measures in the forthcoming budget.

Separate Section for Home Loan Principal Repayment

Housing is a fundamental necessity, and tax benefits should be structured to support homebuyers effectively. Developers are advocating for a dedicated section for home loan principal repayment deductions, as the current section (80C) is overcrowded with various deduction options. They propose setting a minimum limit of Rs 2.5 lakh for this new section and raising the home loan interest deduction limit to Rs 5 lakh.

Incentives for Rental Housing and Long-term Investments

The budget can also play a pivotal role in promoting rental housing for the low-income segment, for whom homeownership remains a distant dream. Many sub-50 lakh houses remain unoccupied as rental yields are low. Effective incentives could make renting a more viable option for owners and beneficial for tenants.

Enhancing Tax Benefits for Real Estate Investment Trusts (REITs)

Under Section 54 of the Income Tax Act, long-term capital gains from the sale of an existing house can be used to buy or construct a new property, but the exemption only applies if the new property is completed within three years. Introducing tax incentives under Section 80C for REIT investors would make REITs an attractive tax-saving instrument, encouraging more investments in the sector.

The Role of RERA and Industry Status

The Real Estate (Regulation and Development) Act (RERA) has been effectively implemented, with developers becoming more vigilant and responsible. Recognizing the real estate sector with industry status would facilitate better financing options. The construction industry, being a significant employer of unskilled and casual labor, would benefit from this status, aligning with national goals of providing housing for all and generating employment. Anticipated measures include a single window clearance system and a focus on promoting affordable housing.

Conclusion

For the Indian housing sector to continue its robust growth and address the diverse needs of its population, especially the lower-income groups, targeted policy measures and tax incentives are crucial. These will not only support homebuyers and developers but also stimulate the overall real estate market, ensuring sustainable urban development and improved living standards.

Sources: 10 key expectations of real estate sector from Budget 2024 - Budget 2024 News | The Financial Express, Union Budget 2024-25 brings high expectations for real estate sector | Budget 2024 News - Business Standard (business-standard.com), Budget 2024 Expectations: Will Housing Sector Get Tax Relief, Industry Status To Real Estate? - News18