Representatives of the real estate sector have said Prime Minister Narendra Modi’s announcement of a Rs 20 lakh crore special economic package, equivalent to about 10 percent of India’s GDP and focusing on land, labour, liquidity and laws, is ‘much required’ and hoped that the details to be announced by the finance minister will include some ‘meaningful stimulus’ for the industry.
It hoped that the announcements by the finance minister on May 13 would include immediate and meaningful capital infusion into banks; one-time restructuring of developer loans; credit guarantee for NBFCs/HFCs lending to real estate and credit guarantee for bank lending to NBFCs/HFCs. To boost demand, the sector is expecting that there may be a temporary reduction or a waiving of GST law and further income tax benefits for home loans.
“We welcome the prime minister’s announcement of the 20 lakh crore economic package for a self-reliant India and look forward to the series of announcements by the finance minister to help uplift the economy during this unprecedented crisis. We are hopeful for a bigger boost to the real estate sector where both demand and supply concerns will be addressed,” said Jaxay Shah, chairman, Credai National.
Homebuyers are hoping that they would get some relief from paying EMI during the course of the coronavirus pandemic, especially those who have to bear the brunt of job losses or pay cuts.
“For all real estate projects that have been delayed, interest on bank loans should either be provided for as deduction in the form of tax relief or the burden should be transferred to promoters of respective projects as they have delayed the project,” says MS Shankar, general secretary, Forum for People’s Collective Efforts.
The government should consider granting tax relief for those homebuyers who are paying both rent and EMI till the time the buyer gets possession of the unit, he says.
Real estate, which was limping back to recovery, has been hit hard by the COVID-19 crisis, and the industry players are hoping that the package details announced by the FM will include some meaningful stimulus for the sector.
“Credit squeeze and weak demand are the two main concerns facing the real estate sector. The Reserve Bank of India (RBI) has already been injecting liquidity into the system, but the more critical aspect would be for the banks and NBFCs to start lending. Support to the banking sector in the form of immediate and meaningful capital infusion by the government will help push up credit growth in the economy. Further, post recapitalisation, the banks should look at a one-time restructuring of developer loans,” said Shishir Baijal, chairman and managing director, Knight Frank India.
In this period of uncertainty and risk aversion, the government’s credit guarantee for NBFCs/HFCs lending to real estate will help this beleaguered sector tide over the credit squeeze. The government should also provide further credit guarantee for bank lending to NBFCs/HFCs.
“The other critical aspect would be measures to boost demand for real estate. In these difficult times, the government should look at a temporary reduction or waiving of GST rate for the sector. Further, income tax benefits for home loans will also help support demand for housing and help achieve the government’s objective of Housing for All,” he said.
The stimulus for real estate sector revival will have a strong multiplier effect, in the form of a boost in demand for sectors like cement, steel and many other ancillary industries. More importantly, support to the real estate sector will help absorb labour force at a time when the economy is struggling with high unemployment rates.
“Supporting the real estate sector is also critical for maintaining the health of the financial sector that has huge exposure to the real estate sector. Broadly, revival of the real estate sector will strongly aid the revival of the economy,” said Baijal.
A white paper prepared by McKinsey has suggested that the central and state governments could pursue an aggressive housing sector stimulus with a few targeted measures such as working with banks to ensure that the benefits of reduction in rates announced by the RBI are passed on to end consumers through a proportionate reduction in lending rates for home loans by banks and housing finance companies.
It has suggested an increase in the income tax deduction limit for interest on housing loans. For homes bought in the next 12 months, the current cap of Rs 2 lakh per annum can be increased to Rs 5 lakh for a period of 7 years.
The benefit could be available for up to two houses, giving people time to dispose of their first homes to upgrade to a better home. It has also suggested that the loan coverage criteria on PMAY scheme should be doubled and GST of 5 percent on under-construction properties be removed. Stamp duty incentives should also be provided for the next 12 months, the whitepaper said.