This year, the budget is expected to provide more incentives for people to buy their own homes.
By Atul Monga
With record high mortgage interest rates and a sudden surge of remote working, the real estate industry has seen strong growth lately. After a lackluster 2020, 2021 was a real bargain for the housing sector as most developers reported better sales and rental activity. This was due to better measures taken by the government to provide affordable housing. The government has increased tax benefits on home loans and made it easier to get a home loan. This year, the budget is expected to provide more incentives for people to buy their own homes.
India’s housing sector which accounts for over 8% of GDP is eagerly awaiting the upcoming budget 2022-23. On February 1, as Finance Minister Nirmala Sitharaman presents the budget, the real estate sector has legitimate expectations.
Here are some budget forecasts and expected changes in the real estate sector this year:
Reduce the promoter’s tax burden by authorizing the input tax credit (ITC)
According to the last budget, the GST levied on underconstruction is 5% while on affordable housing it is 1%, but without the input tax credit. There is no GST charged on completed units. This leads to a higher price of a home because the GST on steel and cement is 18% and 28%, respectively, and developers cannot claim tax credits for GST paid on inputs. Therefore, it is important to cap 1% on the GST for projects under construction.
With this GST exemption on projects under construction, budget expectations for home loans may be revised upwards. Additionally, allowing the input tax credit will not only help developers reduce property prices, but will also increase the affordability of those properties for buyers. In the next budget, the government can take the opportunity to restore the input tax credit. Also, a reduction in raw materials like cement and steel can boost house building, as it can be seen as a way to encourage more people to buy affordable houses.
Digitizing the mortgage market
While all post-Covid industries have pivoted to digitalization, the housing industry is no different. The pandemic has presented a great challenge for financial institutions to change their lending process overnight to keep pace with record highs. Previously, banks and ETFcs were burdened with paper-based lending processes that typically took place face-to-face. But now, financial institutions are adopting digital solutions to perform tasks such as electronic verification of income and assets and hybrid closings. As the adoption of new technologies becomes the need of the hour, some budget should be set aside by the government to centralize home ownership. The transition from traditional home loans to digital home loans may not be easy, but once completed, the entire home loan transaction can become a paperless and user-friendly process in India.
Affordable Housing Review
Current mortgage interest rates and stable employment have synergized the increase in property prices in India. As real estate prices increase, the affordability of buying it decreases. Therefore, from this budget, we expect to see an increase in the affordable housing segment. To match the property bar, the affordable housing segment should be increased to Rs 60 to 75 lacs from the current 45 lacs.
Ease on stamp fees
Stamp duty reduction is a policy implemented by the Indian government to make housing more affordable for first-time home buyers. This is a good move for the government as it helps improve housing affordability and also helps boost the real estate market. For example, the government of Maharashtra has reduced the stamp duty for home loans by 50% in an effort to make the process easier and cheaper. The state government expects this to help reduce interest rates on home loans and increase affordability. With the same intention, another state should also consider reducing stamp duties on houses. This will not only increase the demand for houses, but also make housing more affordable.
The home loan deduction limit is the maximum amount of interest that can be deducted from income when calculating taxes. The deduction limit is set at Rs 2 lakhs for the financial year 2020-21. In an upcoming 2022 budget, to address affordability, the government may plan to increase the 2 lakh rebate on housing interest rates to at least 5 lakhs. In addition, the other option is to provide a separate provision allowing the deduction of the principal payment which is currently part of 80C. This will create demand and help homebuyers meet their financial commitments.
(The author is CEO and co-founder of BASIC Home Loan)
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