The Union Budget 2021 had several announcements aimed at improving the growth of the real estate sector. From announcing measures to boost affordable housing to augmenting infrastructure spending, the government adopted a sensible and proactive approach to making things better for the sector. 

Here are some major announcements that one should know about -

Benefits on Affordable Housing

In the July 2019 Union Budget, the finance minister had provided an additional deduction of ₹ 1.5 lakh towards interest paid on housing loan for the purchase of affordable homes. These are a category of homes that are affordable for individuals whose income is less than the median income. 

In the Union Budget 2021, the government has extended this tax exemption by one more year till March 2022. The deduction benefit under Section 80EEA will now make it possible for individuals to invest in affordable homes which will likely spur demand. A similar exemption has been announced for rental property as well. These measures will make it easier for migrant workers to live in affordable homes. 

To promote the government’s vision of “Housing for All,” the finance minister also extended tax holiday by one more year for affordable housing projects. This reduced taxation liability will help to increase the supply in this segment.

Monetization of PSU lands

The finance minister announced an ambitious target of realizing ₹1.75 lakh crores through strategic disinvestment for the FY 2021-2022. This is a process through which the government raises money by selling stakes in public sector enterprises owned by the government. The finance minister proposed to achieve this by partial or entire stake sale of many PSUs like Air India. 

Apart from selling stakes in public enterprises, the government also plans to free up non-core assets like surplus land banks lying with government departments, ministries and public sector companies. To facilitate this and expedite the process, the finance minister proposed to create a Special Purpose Vehicle (SPV).

This process will free up land that could then be used for projects like housing, energy or communications infrastructure. It will significantly improve the supply of land in major cities where public undertakings have land banks. 

Boost in Infrastructure 

Infrastructure expenditure has a direct impact on improving the demand for real estate property. Cities that see an increase in infrastructure spending, also witness an increase in real estate activity. 

In the coming years, the government is planning to build thousands of kilometres of highways across the country. In the latest budget, the finance minister proposed to build 8500 km of highways of which 675 km worth ₹ 25,000 crores is slated for West Bengal alone!

In addition to this, the government also plans to privatise airports in tier 2 and tier 3 cities and also upgrade railway infrastructure. A Development Financial Institution for funding infrastructure projects is also being mulled by the government. 

All these steps will directly contribute to pushing the demand in real estate as infrastructure and connectivity are major points that customers look into when buying a property. 

Relaxation for REITs and InvITs

Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) are companies that own or operate real estate and infrastructure projects. Their functioning is similar to mutual funds but they only invest in real estate projects. Their major source of income is through rental income from their property and interest on loan advances. 

The government proposed to implement a series of reforms by way of amendments to make it easy for REITs and INvITs to raise funds. The government also announced exemption of TDS on dividends that are distributed to the shareholders of REITs and INvITs. These measures will make the segment attractive for investors and help in bringing fresh cash-flow in real estate.

Reduction in excise duty on steel

Steel is a major component of infrastructure projects. Recently, the government reduced excise duty on steel to 7.5% and also exempted duty on import of copper and steel products. This step will benefit real estate developers as their input costs will reduce which will prevent them from increasing prices. 

While this may not directly translate to amplifying the demand for real estate, it will surely act as a big relief to real estate developers.

No Relief in Income Tax

While real estate experts were hopeful of changes in income tax slabs and exemption limits, the government decided to keep it relatively unchanged. A reduction in the tax rate would have resulted in extra cash in the hands of crores of taxpayers that could have been invested in real estate. However, the Covid-19 pandemic stressed the finances of the government, leaving them with limited options. 

The only relief was for senior citizens aged 75 and above. Those in this tax bracket will no longer have to file tax returns if pension and interest are their only sources of income.

Summing it Up

Overall the budget was sensible and in line with the government’s efforts of making affordable housing accessible for all. There was nothing big for the commercial or retail segment of the real estate industry. Nevertheless, the small steps have been welcomed by the industry experts as this will help to create some pick-up in the demand.