With the Union Budget on the horizon, the wishlists from various sectors vary but also remain the same in terms of growth expectations, liquidity, credit, and ease of doing business.
The real estate and infrastructure sector are also focused on easing liquidity and easing business structures. There are, however, some concerns that the industry is faced with. The NBFC crisis has impacted real estate in the country, and there’s enough justification to warrant the improvement of credit off-take. Aside from recapitalisation by the government and stringent measures by the RBI, the gross NPAs of banks also improved to just about 9.1% towards September-end 2019 (against 11.2% the preceding year).
The need for the hour is governance changes in terms of the creation of a well-functioning bonds market, partial credit guarantee scheme, alternative investment funds in the real estate sector, and measures for alleviating stress among NBFCs.
Another concern would be the cancellation of ITC benefits. While the GST rate on under-construction properties was reduced to 5% in 2019, the previously available ITC benefit was shelved. Already cash-starved developers cannot get tax benefits and therefore the increased costs are passed on to the buyers. Providing benefits may be a great incentive to reduce property prices and make under-construction homes more attractive.
A corrective measure for boosting demand in the sector would be the immediate deployment of ₹25,000 crore alternative funds for completion of stressed projects. This would improve buyer sentiment and boost demand.
The most important change that needs to be brought about is making affordable housing projects a reality. Easing liquidity is one such initiative that will increase capital flow for developers and keep a supply, thus gaining the confidence of the home buyer. We also need proactive initiatives for investments in affordable housing since developers are currently unable to get funding from major banks and NBFCs at lower interest rates, leading to dismal profit margins.
Another initiative that might kick-start a healthier demand for housing would be the hiking of tax rebates on housing loans, especially within affordable and mid-segment categories.
The new lower 15% tax fee for businesses trying to set up new factories may be useful if they are able to procure land easily. Implementation of a unique identification number (UID) for land will bring transparency to India’s old land records system and help entice more overseas investors. This will hopefully speed up the approval system for actual estate projects as well.
Execution must be good
All these initiatives would only be fruitful with effective execution. The government’s plan to spend ₹105 lakh crore on infrastructure over the next five years can only give economic results with speedier on-ground implementation. There is a dire need to iron out the bottlenecks hampering infrastructure growth – this is needed in the short term (1-3 years) rather than the long term.
For the common man, personal tax relief should be implemented either by a cut in tax rates or favourably readjusted tax slabs since the last increase in the deduction limit under Section 80C (to ₹1.5 lakh a year) was in 2014 and a revision is long overdue. More incentives and schemes need to be implemented for home principal and interest exemptions to encourage first-time buyers. Long-Term Capital Gains tax should be abolished to bring back investors to the stock market.
The economy grappled with global issues including the U.S.-China trade war and internal issues like bank NPAs and liquidity crisis in 2019.
While the government took steps including reduction in corporate tax rates and standardisation of GST, the current fiscal deficit and the muted GDP growth rate puts it in a tight corner in terms of living up to the budget expectations of the industry and the common man. The very recent U.S.-Iran tussle may further complicate the issue.
Only time will tell how it will walk the tightrope and achieve GDP growth, and improve liquidity and employment and consumer spending in the years to come.
(The author is an industry expert and CEO, Vestian)