Budget 21-22 and the real estate and construction industry
2020 was a watershed year for the global economy as the COVID-19 pandemic ravaged economies worldwide. India, which some critics had predicted was sitting on a time bomb and would be facing the worst humanitarian disaster, has so far appeared to have weathered the Pandemic storm well. Now that cases have dropped substantially and the vaccination programs have commenced in full force, the recovery phase for the Indian economy has truly started.
Hence the Union Budget 21-22 is unique in its background. The Union Finance Minister on Monday presented the Budget 2021-22 that aims to shore up an economy badly-hit by the novel coronavirus pandemic. The economy is projected to contract 7.7% in the current fiscal year, although the government forecasts growth of 11% for the coming fiscal year, after a massive COVID-19 vaccination drive and a rebound in consumer demand and investments. This budget presentation was also unique as it was the first time that the Union Budget has gone paperless and is made available online.
Keeping in mind the 'Housing for All' and 'Affordable Housing' as priority areas for the government as part of the expansion plan for the economy this Union budget has clearly underlined the policy tone of the budgets set out earlier and has thus no substantial deviations on the overall vision of the Government. The Union Budget 2021-22, has a road-map for lifting the economy out of the COVID-19 pitfalls, focusing on four 'I's – Individuals, Investors, Industry and Infrastructure – while having many direct and indirect provisions to benefit the real estate industry and sustain its recovery process in the post-COVOD years.
Here are some of the salient features of the Union budget 21-22, which may have a substantial impact on the real estate and construction industry.
In the July 2019 Budget, the government provided an additional deduction of interest, amounting to Rs 1.5 lakh, for loan taken to purchase an affordable house while the FM proposed to extend the eligibility of this deduction by one more year, to March 31, 2022. The additional deduction of Rs 1.5 lakh shall therefore be available for loans taken up till March 31, 2022, for the purchase of an affordable house.This relief will encourage potential home buyers and fence-sitters to finally take the plunge and invest in affordable housing. Similarly, another year's tax holiday on affordable housing projects will encourage more launches in this category.
There was an increase in allocation towards the Ministry of Housing and Urban Affairs (MoHUA) to the tune of Rs 54,581 crore in the Budget 2021, which indicates the government's commitment to meet the goal for Housing for All under Pradhan Mantri Awas Yojana (PMAY)
To promote supply of Affordable Rental Housing for migrant workers, and a shuge shift in working with the Work from home regulations, the government also has allowed a tax exemption for notified affordable rental housing projects, a measure that will boost the supply of affordable rental houses in big cities and metros with high rentals.
1,016 km of metro and RRTS is under construction in 27 cities. Two new technologies i.e., ‘MetroLite’ and ‘MetroNeo’ will be deployed to provide metro rail systems at much lesser cost with same experience, convenience and safety in Tier-2 cities and peripheral areas of Tier-1 cities.
A professionally managed Development Financial Institution is necessary to act as a provider, enabler and catalyst for infrastructure financing. Accordingly, FM will introduce a Bill to set up a DFI. Sitharaman provided a sum of Rs 20,000 crore to capitalise this institution. The ambition is to have a lending portfolio of at least Rs 5 lakh crore for this DFI in three years time.
To consolidate and regularize the unorganized labor force and migrant workers, the FM proposed to launch a portal that will collect relevant information on gig, building, and construction-workers among others. This will help formulate Health, Housing, Skill, Insurance, Credit, and food schemes for migrant workers.
Additional capitalization for real estate
Further, the formation of Development Financial Institution (DFI) with a capitalisation of Rs 20,000 crore will meet the liquidity challenges for infrastructure and real estate development. The proposal to allow the DFI to leverage debt of up to Rs 5 lakh crore in three years will allow real estate and infrastructure investors to tap long-term foreign funding through the Real Estate Infrastructure Trusts or Infrastructure Investment Trusts (REIT/InvIT) route. Further, exempting TDS on dividend income from REIT/InvIT will make investments in India's infrastructure and real estate industry further attractive for investors.
Stressed Asset Resolution
An Asset Reconstruction and Management Company would be set up to consolidate and take over the existing stressed debt and then manage and dispose of the assets to Alternate Investment Funds and other potential investors for eventual value realization.
To ensure faster resolution of cases, NCLT framework will be strengthened, e-Courts system shall be implemented and alternate methods of debt resolution and special framework for MSMEs shall be introduced.
Stressing on Make in India and to avoid dependence on Chinese eletronic items, the custom duty has been increased on inputs and parts of LED lights or fixtures including LED Lamps from 7.5% to 10% and on solar lanterns or solar lamps from 5% to 15%. This is a trend to watch out for in the coming budgets as imported parts and items from China will start getting more expensive, promoting local manufacturing initiatives.
So overall the budget is moving exactly on the lines of its predecessor budgets without any notable deviations. The only dent in the earlier road map was the unexpected impact of the novel corona virus pandemic, which the government hopes to overcome by the next budget.