The real estate sector in India has been among the fastest growing and most robust across the globe for the past few decades, but, needless to say, it has not been left unscathed by the coronavirus pandemic. In India, the sector had already been facing several difficulties for the last few years and the pandemic only added to its woes. In the midst of all prevalent difficulties, the union budget 2021 came as a tonic to boost the overall health of the real estate sector, especially the affordable housing section. This brings smiles to the faces of millions of Indians in the middle and low-income groups, whose only hope to own a house comes from the same. More importantly, this also fills the sector with new energy and aspirations as it will drive it to a sooner-than-expected recovery. Let’s examine how the budget of 2021 is going to impact the affordable housing section and how it can start the domino effect for the entire economy.
Notwithstanding several efforts by the government, the Indian real estate sector has been facing slowdown for the past couple of years. Financial reforms like the introduction of GST and implementation of demonetisation, which were expected to have long term benefits, have had short term slowdown effects. Being a largely unorganized sector, real estate took longer than anticipated to adapt to the new reforms; the advent of Covid-19 and subsequent lockdown resulted in a further slump in the same. The exodus of the migrant workers also affected real estate; however, as the economy gradually opened, the sector started to show signs of recovery.
Despite all the efforts from the government and the corporate in the past few months, these signs of recovery were, unfortunately, very weak, and for a massive sector like real estate, which is capital and labour intensive and driven very largely by public sentiment, strong supportive measures from the government is essential. Much was expected from the budget 2021 and it didn’t disappoint -- the FM announced several measures, especially for the affordable housing section, to rejuvenate it.
Ever since 2019, home-buyers in the affordable housing section get interest-deduction of INR 1.5 lakh on loans taken. The union budget this year extended this benefit up to March 2022, which will encourage more and more home-buyers to invest in affordable housing. The surge in demand in the sector will help bring in more finance -- as investments start flowing in the industry, recovery gains pace, and the sector is benefited as a whole. Another important measure announced in the budget is the tax holiday of one more year for affordable housing projects; this will make such projects more attractive for developers, and projects under construction will be completed much faster. Another important after-effect will be that more and more developers will be encouraged to look beyond the big cities and venture into tier I and tier II cities, which will, in turn, boost the economies of the same. More importantly, it will bring smiles to the faces of people belonging to the lower and middle-income-earning populace as their dreams of owning a house will come closer to realisation.
The budget also has provisions for tax exemptions for notified affordable rental housing projects. This will be extremely encouraging and beneficial for migrant workers, who play an important role in the real estate sector. They can now hope for more dignified living in the bigger cities where they work, which will also act as a buffer to any future corona-like situations that may lead to their exodus.
If the housing sector were to be seen as a pyramid, the affordable section would form its base, and the provisions of the budget of 2021 would help strengthen it. If the base gets stronger, the upper layers of the pyramid (non-affordable housing and luxury housing) are benefited. As finance starts flowing in the sector, developers are able to use the surplus to complete projects in the non-affordable and luxury housing sections. Going by the sentiments of the market, one can easily deduce that ready-to-move homes attract buyers even in higher price ranges. This way the entire real estate sector is benefited.
India is known for its massive middle class. This middle class is the one which drives almost every sector of the economy. The extension of the sops in the affordable housing section directly benefits the middle-class, which is the primary investor in the affordable housing sector. With the rejuvenated hopes and aspirations of the nation's middle class, the affordable housing sector has the potential to pull the entirety of real estate out of slump.
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