Fri, 28 Feb, 2020

Union Budget: Real-estate developers disappointed

At a time when builders are struggling with the toughest phase they have seen in decades, the Union Budget has not offered them a glimmer of hope. In fact, some of the announcements are likely to affect the sector badly. The Finance Minister hinted that in the future all tax exemptions may be lifted, which means people will no longer have tax exemptions on home loans. Builders said that this will be a discouraging move

10th February 2020, 04:27 Hrs

Karan Sehgal


The real-estate sector is going through a slowdown for a long time. Typically, after every slowdown, the sector shows signs of recovery. But this time even after the slowdown has lasted 5-6 years, there are little or no signs of normalisation.

Obviously then, the builders were expecting confidence-building measures from the Union Budget, which would have improved the demand. However, Union Finance Minister Nirmala Sitharaman did not make such announcements, which left them disappointed.

Satish Magar, president, CREDAI National, said: “Budget 2020 has not been encouraging for the Indian real estate sector, which needs immediate attention from the Central Government. As an industry, we expected bold steps from the government to revive the ailing sector such as providing more liquidity for the sector, one-time restructuring of loans, and tax deductions on home loans, to give impetus to 

buyer sentiment.”

“Unfortunately, none of these issues have been addressed, except providing tax holiday for one more year for affordable housing developers and loan sanctioning – which was due for some time,” Mangar continued.

That, in a crux, was the problem from real-estate’s perspective in the budget. The builders expected a boost in the form of incentives to consumers to buy real estate, but no such move was announced.

Moreover, Sitharaman hinted that all tax exemptions may be removed in the long run.

Budget 2020 proposed two tax regimes. The first which allows the tax exemptions on interest and principal payments of housing loans. The second which doesn’t allow for such exemptions. As of now, the taxpayers can choose which option they would like to go for. But, in future, based on Sitharaman’s statement, all sorts of tax exemptions may stop.

As of now, under Sections 24 and 80C of the Income Tax Act, the individuals get tax exemptions on the interest payment and principal repayment of home loans. The exemptions can be availed for a maximum amount of Rs 3.5 lakh.

So if you come under 30% tax rate slab, you end up saving Rs 1.05 lakh (30% * 3.5 lakh) every year in tax exemptions. If such exemptions are removed, then the taxpayers may not 

like it.

Chinmay Borkar, Director, Akar Reality, said: “From the real estate sector viewpoint, the announcement on personal income tax was a negative. As of now, buyers get tax exemptions on interest payments and the principal amount of a home loan, which helps them in saving a significant amount 

of tax.”

“This is the toughest phase for the real-estate sector in decades. The Union Budget did not provide any specific relief to the sector. Ever since the input tax credit was removed from GST on real estate, the consumers have to pay 2-3% tax more,” Borkar added.

The government has changed tax rules so frequently in the last few years that the developers are never sure what the tax rate will be by the time they finish a project.

Rohit Gera, Managing Director, Gera Developments, said: “From the budget, it appears that the Central Government has taken a direction wherein they are saying that they are not giving any exemptions. Unfortunately, due to the low demand situation, the sector needs something.”

“If by giving tax exemptions, the government had given money in the hands of consumers, they would have definitely created the demand for the real estate. The real estate sector needs a boost. The situation is really grim. The NBFCs are not lending to the sector,” Gera continued.

Even though the builders in Goa are going through a slowdown much like builders elsewhere in India, still Goa’s real-estate sector is comparatively better. For one, the problem with stalled projects isn’t much in Goa.

The problems here are mostly on account of really low demand. With mining shut and tourism down, people don’t have money and therefore they don’t buy flats or houses like they used to do earlier.

Desh Prabhudessai, a builder, said: “On the tax front, we have more expectations from the State Government. The local government can give a boost to the sector by reducing infrastructure tax or

stamp duty.”

“At the national level, the issue is there are a lot of stalled projects or projects which are completed, but they are not able to find buyers. In Goa, we don’t have that situation and therefore relatively speaking, we are better off,” 

he continued.

Chief Minister, Pramod Sawant, did not reduce tax for the real-estate sector in his budget. In fact, the CM increased the stamp duty in 

his budget, which is likely to make property more expensive further compounding problems for the real-estate 

sector.

Clearly, the builders are not able to see any ray of hope. The taxes are going high, the demand is low and the sector is ailing with a slowdown for many years. Now, only if the overall economy revives that the sector will do well.

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