Budget 2024 will be presented by Finance Minister Nirmala Sitharaman today and the real estate sector hopes that the government will focus on affordable and middle income housing in the Budget. It has sought for an expansion of the definition of affordable housing, tax sops for homebuyers to enhance affordability as well as incentives for developers to encourage them to construct affordable housing.
The need of the hour is to provide more tax sops for both homebuyers as well as developers wanting to undertake affordable and middle income housing projects. The government should raise the deduction limit for interest payment on home loans from the existing ₹2 lakh a year to ₹5 lakh, which will add momentum to housing demand, said real estate experts.
1 Increase deduction limit on interest payment
National Real Estate Development Council (Naredco), a builders’ body, has suggested that the tax exemption on interest on self-occupied property loans should be increased to ₹5 lakh in the upcoming budget from ₹2 lakh currently to boost housing demand amid a rise in housing prices and mortgage rates.
Developers have also sought some tax incentives to boost demand and supply of affordable homes. NAREDCO noted that under Section 24 of the Income Tax Act, the deduction allowed on interest on loans for self-occupied property is limited to ₹2 lakh.
“Given the rising property prices and interest rates, NAREDCO proposes increasing this limit to at least ₹5 lakh,” the association said in a statement.
2. Allow builders to pay GST at concessional rate without input tax credit
NAREDCO has also urged the government to allow builders the option to pay GST at a concessional rate without input tax credit (ITC) or at a higher tax rate after availing of ITC. Currently, GST on affordable housing units is levied at 1% without ITC and at 5% without ITC on other residential units. The option to choose between concessional rates without ITC or higher rates with ITC would result in tax cost savings and better cash flows for developers, ultimately benefiting end customers.
Real estate developers body, the Confederation of Real Estate Developers Associations of India (CREDAI), in its wish list for Budget 2024, has said that the government should consider allowing unlimited interest deductions for the first self-occupied property or increasing the deduction limit to ₹5 lakh from ₹2 lakh for homebuyers.
3 Incentives for affordable housing
The current growth trajectory is skewed towards mid-range and premium housing. Considering the specific housing needs of India’s lower-income groups, this momentum cannot ride solely on higher-priced homes while affordable housing continues to languish. The government should therefore focus on providing more sops for affordable and mid segment housing, said experts.
Also Read: Modi 3.0: Cabinet’s nod to 3 crore rural and urban homes under PMAY to help revive the affordable housing segment
As per ANAROCK Research, the sales share of affordable housing reduced significantly after COVID-19 – from over 26% in 2022 and over 38% in 2019 to approximately 20% in Q1 2024. Due to low demand, this segment’s share of the overall housing supply in the top 7 cities also fell to 18% in Q1 2024, from nearly 40% in 2019. Total sales reached an all-time high at about 4.93 lakh units in FY23-24, while 4.47 lakh units were launched.
Also Read: Affordable housing launches drop 21% in April-June period across 7 major cities as builders focus on premium units
Anuj Puri, Chairman – ANAROCK Group said that many interest stimulants previously extended to buyers and developers of affordable housing have expired in the last two years. This important segment must be revived with high-impact measures like tax breaks – for developers, so that they will focus more on affordable housing, and for buyers to improve affordability.
Credit-linked Subsidy Scheme under PMAY
This scheme for EWS/LIG, which expired in 2022, should be revived to incentivize first-time buyers of affordable homes across cities. This will once again invigorate demand in this segment. Subject to criteria specified under government guidelines, CLSS was previously available for housing loans to EWS/LIG buyers in new constructions, and for the addition of rooms, kitchen, toilet etc. to existing dwellings. Also, under PMAY (Rural), one could avail of this subsidy for all ‘kaccha’ homes being converted into ‘pucca’ ones, provided they fulfill the eligibility criteria, said Puri.
Re-introduce 100% tax holiday for affordable housing developers
To boost supply and incentivize developers to build more affordable housing, the government can re-introduce the ‘100% Tax Holiday’ benefit they previously enjoyed under section 80-IBA in the Finance Act, 2016. This section provided for major tax relief on the profits earned from developing and building affordable housing projects.
Tweak the definition of affordable housing criteria to widen additional deductions benefits to more homebuyers
According to the Ministry of Housing and Urban Affairs, affordable housing is defined based on property size, price, and buyers’ income. For instance, affordable housing is a house or flat with carpet area up to 90 sq. m. in non-metropolitan cities and towns, and 60 sq. m. in major cities and valued up to ₹45 lakh for both. The central bank’s definition, on the other hand, is based on the loans given by banks to people for building a house or buying apartments.
The government must seriously reconsider revising the pricing of homes within the affordable housing budget, taking into consideration city-specific market dynamics. As per the current definition, the size of units at 60 sq. m. carpet area is appropriate. However, prices of units (up to ₹45 lakh) are not viable across most cities.
For instance, for a city like Mumbai, a ₹45 lakh budget is meaningless. It would need to be increased to at least ₹85 lakh. In other top cities, the budget should be increased to at least ₹60-65 lakh. With such price revisions, more homes would qualify for the affordable price tag, so more buyers can avail of benefits such as lower GST rates at 1% without ITC, government subsidies, said Puri.
The definition of an affordable residential apartment, which currently includes criteria for carpet area and a price cap, also needs revision. NAREDCO recommends retaining only the carpet area condition without the price limit. This change would accommodate higher land prices in metro cities and extend affordable housing benefits to more projects, enabling a larger portion of the lower and middle-income population to buy homes.
According to Anshuman Magazine, chairman and CEO – India, South-East Asia, Middle East & Africa, CBRE, the the criteria for affordable housing are based on the cost of the property ( ₹45 lakh), carpet area (60 sq. m to 90 sq. m), and income of the homebuyer (EWS / LIG). The government should consider expanding the cost, size, and income criteria to make the scheme more inclusive. The government should consider increasing the size criteria for metro cities to 90 sq. m. and establishing three to four brackets of unit sizes and prices to define the eligibility criteria depending on city / state dynamics, as capital values in larger metro cities (Mumbai, Delhi-NCR) can be significantly higher vis-a-vis other cities.
Increase budgetary allocation towards PMAY
The government should look at increasing the budgetary allocation towards the Pradhan Mantri Awas Yojana (PMAY) over the previous year, coupled with the recent Cabinet announcement to provide financial assistance to construct an additional three crore rural and urban houses under the scheme, underscores the government’s ongoing commitment to bolster the affordable housing sector. The scheme’s timely implementation holds significant potential to invigorate the sector further.
“We also eagerly await further details concerning the PMAY-Urban scheme, in light of the Interim Budget 2024-25 announcement about the government’s plan to launch a scheme to help deserving sections of the middle class living in rented accommodations, slums, chawls and unauthorised colonies to buy or build their own houses,” said Magazine.
Also, under Section 80IBA, the government provided a 100% tax deduction of the profits and gains derived from the business of developing and building affordable housing projects. However, the tax holiday expired in 2022. A revival of the scheme would benefit developers of affordable housing projects, as such projects typically operate on thin margins, said Magazine.
4. Utilise land parcels available with the government and public sector enterprises
The Government has several unused or sub-optimally used land parcels available to itself or public sector enterprises. These could include Port Trust land, railways, defence unused land parcels, etc. “We recommend unlocking these land parcels and partnering with credible private developers to develop affordable housing once the land and approvals are in place. These land parcels could also be leveraged for the development of industrial parks and related infrastructure. This will not only reduce development risk but will also help the government leverage the private sector’s operational efficiencies,” he said.
“We also urge the government to provide a comprehensive framework regarding changes in land usage to fast-track development and make land acquisition smoother,” Magazine said.
Manoj Gaur, Chairman, CREDAI National and CMD, Gaurs Group says, “The real estate has pinned high hopes on the forthcoming budget. First of all, the sector is looking for the reintroduction of the interest subvention scheme to revive mass housing. Secondly, we are also seeking a redefinition of affordable housing. The present limit should be increased from 90 sq mtr and ₹45 lakhs in terms of space and pricing, respectively. These will be a much-needed intervention as a considerable demand exists in the affordable housing segment. Lastly, we are also looking forward to announcements on GST input credit to stimulate growth and foster a more resilient real estate environment.”
Dhruv Agarwala, Group CEO, Housing.com and PropTiger.com, said the demand and supply for affordable homes have shown fluctuating trends over the last three years across major tier I and tier II cities.
“In response, the upcoming budget should focus on revitalising both demand and supply for homes in the ₹15-75 lakh per unit price bracket. Introducing interest subsidy programmes could incentivise potential homebuyers effectively,” he said.
To boost supply, Agarwala said the government could strategically deploy its extensive land banks in partnership with private developers, offering land and capital at concessional rates.
5. Industry status for the real estate sector
Amit Modi, Director of County Group, said, “One of the most long-standing demands the sector emphasises upon is the need to grant industry status to enable easier access to low-cost financing, which benefits consumers directly. Additionally, implementing single-window clearance is crucial for timely project completion and cost efficiency.”
Real estate experts said that the sector should be granted infrastructure status as well.
“With real estate sector expected to contribute 13-15% of the Indian GDP by 2030, stakeholders are hopeful for grant of ‘infrastructure’ status, a long-standing demand. This could significantly ease access to institutional credit and reduce borrowing costs for developers, fostering growth and investments. Additionally, standardisation in definition of affordable housing can improve consistency in financing criterion across institutions and potentially simplify access to credit for interested homebuyers within the segment,” said Badal Yagnik, Chief Executive Officer, Colliers India
