When the finance Minister Nirmala Sitharaman presented her first Budget in July 2019, real estate developers and experts were watchfully looking at the plans and proposals that will impact the Indian real estate sector. While the industry had many demands to be met by the government, the Budget received mixed reviews. While there were plans to boost the affordable segment, there were many issues that went unanswered. Let’s take a look at how Budget 2019-20 will impact the Indian real estate.
Who Will Benefit From the Budget?
The Budget includes several plans that will encourage:
- Buyers in the market for well designed affordable homes
- Real estate developers
Boost for Affordable Homebuyers
In the Budget, the government has committed to several plans that will push the fence-sitters; potential homebuyers who have been hesitant to invest in real estate. Under the PMAY-G scheme (Pradhan Mantri Awas Yojana – Gramin), “Housing for All” will be extended to all eligible beneficiaries by 2022. In the last five years, a total of 1.54 Crore houses were made available with more becoming available in the coming years. During the second phase (2021-22), 1.95 Crore houses will be available with amenities like toilets, electricity and LPG connections.
In addition to this, the government has announced a tax deduction benefit up to Rs. 3.5 lakhs (Rs. 2 lakhs earlier) for interest paid on loans for houses valued up to Rs. 45 lakh. This deduction applies to loans borrowed up to 31st March 2020. This increase in tax benefit is expected to encourage homebuyers who have thus far been hesitant to buy houses.
Improved Rental Laws
As a measure to improve rental housing, the current rental laws are being reformed. Presently, they fail to address the relationship between the house owner and the lessee. The new draft Model Tenancy Act focuses on issues like limiting the security deposit to 2 months for residential properties, penalising tenants who refuse to move out of their rental houses and giving three months notice before increasing the rent. The Act also stipulates to set up a redressal mechanism to settle disputes between owners and tenants. When the Act comes into effect, it will regulate the existing tenancy conditions and improve the rent control laws, which will have a substantial positive impact on the residential sector.
As the finance minister said, in the small and medium industrial segment, Non-Banking Financial Companies (NFBCs) have a significant role in sustaining consumption demand and capital formation. When NFBCs faced a liquidity crunch earlier in the year, they flinched when lending to the real estate. This hesitation on the part of the banks hit the real estate sector, already reeling from the effect of RERA, demonetisation and GST, hard.
However, in the 2019-20 budget, the Finance Minister announced several measures to ease the liquidity crunch that the NFBCs were suffering from. These were:
- Funds from banks and mutual funds without risks for sound NFBCs
- For NFBCs with high-rated pooled assets, the government will provide a one-time partial credit guarantee for six months.
Focus on Infrastructure
The Finance Minister also committed to several plans that will give an immense boost to all forms of physical connectivity across the country. Increased connectivity and focus on improving roads, national road corridors, highways, metro and suburban railways is expected to attract investment in the residential sector.
What the Budget 2019–20 Failed to Address
The Budget 2019-20 failed to address the sector’s most pressing concerns:
- Demand for industry status
- Single-window clearance
The most pressing demand of the real estate sector was the imparting of ‘industry status’ to the industry as a whole, which unfortunately was not mentioned at all. Granting industry status is crucial because it would have helped developers raise Foreign Direct Investments, cut construction costs and pass on more benefits to the customers. In addition to industry status that was not mentioned, land reforms, including stamp duty under GST, were also not mentioned at all.
Increased Approval Time
One of the critical demands of the sector has been a single-window clearance system in place of a complicated process. Getting approval from various authorities delays the delivery of projects. Single-window clearance, if given, will drastically improve the time and costs associated with approval processes. Timely clearances of titles of land and government permissions would promote the affordable housing segment.
Despite the misses, the budget 2019-20 gives a much-needed nudge to the real estate sector. It majorly focuses on improving the country’s infrastructure and development. This commitment from the government will create a positive impact on the affordable housing segment. Properties in this affordable segment developed by the top builders in Chennai will be in high demand as the city’s infrastructure and physical connectivity improve.
Adroit Constructions is a premium real estate developer in Chennai who has been at the forefront of the city’s realty sector since 2006. They have ongoing, completed, and ready-to-move-in apartments in excellent locations with top-notch amenities.