2021-01-06T12:00:00 updates

Budget 2021 Might Support Affordable Housing

The COVID-19 pandemic has caused a dent in India’s real estate sector, which was already grappling amidst a prolonged phase of a slowdown. The onset of the pandemic led to a complete stoppage of construction activities and a sharp decline in demand. A report by ANAROCK showed sales of residential properties had fallen by a whopping 81 per cent in the top cities in the June quarter. New project launches had also dropped by almost 98 per cent.

Supply and demand boosters

In the earlier months of the lockdown, the government stepped in to support the real estate sector. Among several measures announced were extension of timelines for all RERA projects, allowing the COVID-19 pandemic to be treated as an event of ‘Force Majeure’ under RERA, implementation of several liquidity measures, including a special liquidity scheme of Rs 30,000 crore for housing finance companies and NBFCs.

Besides the supply side boosters, the Reserve Bank of India (RBI) reduced repo rates to a record low of 4 per cent through two rate cuts of 75 bps in March’20 and 40 bps in May’20. Recently, RBI also rationalised the risk weights for all new housing loans until March 31, 2022, and linked them only to the Loan-To-Value (LTV). This move was expected to give relief to big-ticket borrowers.

New trends emerge

The pandemic has changed the face of every business and industry and the real estate segment is now different. The shift to work-from-home practice catalysed housing demand after realising the need to shift to their own house from a rented accommodation or move to a bigger house. Digitisation and implementation of new technologies have redefined the entire buying-selling experience.

Historically low-interest rates, in addition to the reduction in stamp duty in many states and pent-up demand, led to a rebound in sales of affordable housing. According to industry reports, the sales and new launches in the affordable housing segment reached 70 per cent of the pre-COVID-19 levels.

Budget will support affordable housing

The trend of innovations and policy interventions is expected to continue through the year 2021 to sustain the growth momentum in demand, supply, and purchase of real estate, with a particular focus on affordable housing.

The upcoming Union Budget 2021-22 will likely have a slew of announcements for this industry, which could revolve around the following:

1. Extension of the CLSS subsidy

The current deadline to claim the benefits under PMAY’s Credit Linked Subsidy Scheme (CLSS) for the MIG category is March 31, 2021, and for the Economically Weaker Section (EWS) and the Lower- Income Group (LIG) is March 31, 2022. These deadlines could be extended further to support demand.

2. Redefining affordable housing

Currently, the definition of affordable housing entails any flat or house which is not priced above Rs 45 lakh and doesn’t exceed the carpet area of 90 square metres in non-metropolitan areas and 60 square metres in metropolitan cities. This definition could be revised given high property rates in metropolitan areas.

3. Income Tax benefits

Currently, the government allows an additional income tax deduction of up to Rs 1.50 lakh on the interest payment on housing loans for affordable houses. This tax benefit, which was first announced in Budget 2019, is applicable till March 31st, 2022. Further, the government also announced a tax holiday in last year’s Budget for affordable housing developers. Under this, a 100 per cent tax deduction was allowed under section 80IBA until March 2021 for affordable housing projects. The government may either extend the deadlines or announce new tax reliefs this year.

4. ITC benefits could be reintroduced

In 2019, the GST Council had allowed developers under-construction residential projects a one-time option to either choose the old GST rates of 8 per cent and 12 per cent on affordable housing and non-affordable housing, respectively, with Input Tax Credit (ITC), or shift to the new 1 per cent and 5 per cent rates, for affordable housing and non-affordable housing, respectively, without the ITC. The government could reintroduce the ITC in this Budget, heeding to the industry’s demand.


The author is CEO at Reliance Home Finance