Budget 2023 must focus on affordable and rental housing: Experts 

Stakeholders in the real estate are sector are hoping Budget 2023 will focus on providing a push to both affordable and rental housing as well as strengthen the existing financing systems to provide liquidity to stuck real estate projects.

The government must offer more incentives to boost affordable housing, they say. The pandemic derailed the affordable housing growth story since early 2020, they say.

Homebuyers say high interest rates have dented affordability and is beginning to hurt their repayment capacity. They want the government to introduce a provision that will allow them to get full deduction of the interest component of their home loan from their total income.

Real estate developers hope the government would offer more incentives to boost affordable and rental housing and also increase the Rs 2 lakh tax rebate on housing loan interest rates under Section 24 of the Income Tax Act up to at least Rs 5 lakh.

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Pradeep Aggarwal, founder and chairman of  the real estate company Signature Global, said that  keeping in view high inflation and significant rise in borrowing costs in the last few months, there is an urgent need for tax sops, especially for homebuyers in the affordable and mid-segment housing segments.

Increase in deduction limit 

“I think the government should enhance the deduction limit against interest payment on home loans. For home buyers in the affordable housing segment, the entire interest on home loans should be allowed as a deduction,” he said.

Aggarwal is also of the opinion that the government should reconsider the loss set-off limit under the income tax head for House Property. Earlier there was no such limit, but in Finance Act 2017, the government restricted the amount of loss to up to Rs 2 lakh per year under the head House Property which is allowed to be set off against Income from Other Sources.

“This limit should be removed or enhanced to bring back investors in the sector, this will eventually support the rental housing market to meet demand,” he said.

Besides the usual demand for single-window clearance and industry status for real estate, the government must offer more incentives to boost affordable housing. The pandemic dented the affordable housing growth story since early 2020 – one segment which the government has immensely stressed since taking charge in 2014, said Anuj Puri, chairman of the ANAROCK Group.

Affordable housing supply has reduced significantly since COVID-19, largely because buyers were impacted economically and hence went into a wait-and-watch mode. Now, there is a need to push the buyers of this segment because it also resonates well with the government’s Housing for All initiative, he said.

According to ANAROCK data, in the pre-COVID year of 2019, affordable housing had the highest supply share with 40 percent of 236,560 units launched in the top 7 cities. In the first nine months of 2022, affordable housing reduced to 21 percent of approximately 265,000 units launched in the top 7 cities.

Affordable housing  

Most importantly, the government must seriously reconsider revising the pricing of homes within the affordable housing budget city-wise. While size of units as per its definition (60 sq. m. carpet area) is fairly appropriate, the price of units (up to Rs 45 lakh) is not viable across most cities.

For instance, for a city like Mumbai, a less than Rs 45 lakh budget is far too low and it needs to be increased to at least Rs 85 lakh or more. As for other top cities, the budget should be increased to at least Rs 60 lakh to Rs 65 lakh.

With this price revision, more homes will fall within the affordable price tag and hence more buyers can avail the prevailing benefits such as lower Goods and Services Tax rates at 1 percent without ITC, government subsidies and so on. This will attract more buyers to take the plunge, Puri said.

Further, there should be more tax sops to the homebuyers as well as investors. There is a need to hike the Rs 2 lakh tax rebate on housing loan interest rates under Section 24 of the Income Tax Act up to at least Rs 5 lakh. This will add momentum to the housing demand, particularly in the affordable segment, he said.

Personal tax relief, either by a cut in tax rates or favourably readjusted tax slabs would also be favourable for homebuyers since the last increase in the deduction limit under Section 80C (to Rs 1.5 lakh a year) was in 2014 and an upward revision has been long overdue.

Industry status for real estate 

Niranjan Hiranandani, founder and chairman of the Mumbai-based Hiranandani Group and vice chairman of the National Real Estate Development Council (NAREDCO), says the government should consider granting industry status to the real estate sector for availing of cheap long-term credit.

“Income tax deduction on full interest on home loans should be allowed as it will be beneficial to existing as well as prospective homebuyers.”

Getting the much-needed funding at a lower cost has been a challenge for the industry for several years.

It is also imperative that the Rental Housing Policy is finalised as it will be a game changer to spur rental housing in achieving the target of Housing for All.

“Hence, industry recommends extending the project time limit to five years as an incentivization to the developer fraternity,” he said.

Rental housing

Rental housing is important for people who relocate from different towns and cities for work for whom owning a house in the city of work is not an option as their stay is likely to be temporary.

This primarily includes the low-income group, daily wagers and migrant workers for whom rental housing is the only affordable option in an otherwise expensive housing market. Most of these people in any case are unable to afford housing due to their inability to procure a formal bank loan.

The government announced the Affordable Rental Housing Complex (ARHC) scheme in 2020, aimed at providing accommodation to the urban poor and migrant worker communities.

If rental housing is to be lucrative for real estate developers, it has to come with a tax holiday like what was provided for affordable housing. The developers would also want GST benefits for these projects so as to incentivise them to get into this scheme and undertake development.

The pandemic forced migrant workers to leave cities and drew attention to informal settlements, congestion problems and poor social amenities they faced. It also demonstrated that future health crises will affect all city dwellers, including those who live in upscale neighbourhoods.

Also read: Why the profit-oriented nature of rental housing scheme may benefit formal workers instead of guest workers

The tax rationalization on Long Term Capital Gains accrued from sale of property should be pegged at 10 percent, similar to section 112 for equity shares. (Gains arising from sale of immovable property held for more than two years and attract 20 percent long term capital gains tax.) Also, the period of holding of house property should be reduced to 12 months from existing 24/36 months to qualify the same as a long term capital asset, he added.

Homebuyers’ wishlist 

Interest rates have risen sharply in recent months, rendering even affordable housing unaffordable. This is hurting homebuyers the most since they take huge loans and this can derail their repayment capacity.

Budget 2023 should introduce some relief for interest relief on homebuyers in the form of either a subvention scheme or tax benefits under separate heads, said Abhay Upadhyay, president of the Forum for Peoples’ Collective Efforts (FPCE).

Buyers should be incentivised for buying in projects registered under the Real Estate Regulatory Authority (RERA) in the form deduction of at least 10 percent of the cost of a unit from total income in the first year. This will boost both registration of projects under RERA and encourage buyers to buy only RERA-registered projects, he said.

In the event of any delay in handover of RERA-registered projects within the promised timeline, homebuyers should get full deduction of interest component of their home loan from total income. Builders should be penalised for such delays and forced to pay an additional 10 percent tax.