Clearly, this was a 'make or break' Budget for the government with most sectors (including real estate) seeking concessions to boost consumption and investments.
The government has lived up to the overall expectations in several ways. This Budget restores some of the lost confidence in the India growth story - and more importantly, within India Inc. - by laying emphasis on wealth creators.
That said, the Budget misses on the 'quick fixes' the real estate sector needs urgently and focuses more on a long-term vision. Still, there were a few positives:
- Affordable Housing continues to be the government's focal point for real estate. The previous tax exemptions for both homebuyers and developers have been extended for another one year.
- Personal tax relief across various income slabs will invariably increase disposable income at the hands of the middle class, and boost their consumption capabilities. This benefit may, however, not percolate down to the housing sector as significantly as hoped for.
- Alternative segments get more boost: Rather than giving direct benefits to residential real estate as a whole, the FM laid more focus on alternative segments within real estate - such as warehousing, data centres, schools, hospitals and hospitality. Plans to build Data Centre Parks across the country will boost demand for more real estate spaces. Simultaneously, plans to develop 5 archaeological sites will open new avenues for employment and also indirectly push real estate development.
- Boost to personal investment: Raising the insurance cover of depositors from INR 1 lakh to INR 5 lakh will boost confidence of depositors. This, in a way, will lead to bigger deposits – and thereby help in increasing liquidity in the banking system.
- Abolition of DDT for corporates is another bold move that will help them to diversify or expand their business and also make India an attractive destination for investors, thereby boosting investments. This is definitely good news for commercial real estate.
- Infrastructure development remained on top of the government's agenda of propelling economic growth. Undoubtedly, infra development has a major multiplier effect on not just the overall economy but on the real estate market as well.
On the flipside
- Apart from the affordable housing push and personal tax relief, no major benefits came in for resolving the current housing mess. For instance, a hike in the INR 2 lakh tax rebate on housing loan interest rates under Section 24 of the Income Tax Act could have kick-started healthier demand for housing, especially in the affordable and mid-segment categories. But there was no announcement in this regard.
- Also, the Budget missed any major announcement for easing liquidity in the real estate sector – a major worry for most developers. Project delays - the biggest fallout of the cash crunch – have severely dampened buyer sentiments. There was a dire need to address this concern immediately.
- The Budget also did not announce any measures pertaining to implementation of land reforms. The lower 15% tax rate for companies looking to set up new factories can be applied only if they can acquire land easily. Further, bringing greater transparency to India's outdated land records system would help attract more foreign investors and limber up the approval procedure for real estate projects.
Overall, the Union Budget 2020-21 aims to boost employment generation, increase consumption and attract global investments. On those fronts, it scored over the previous budgets.