Budget 2021: Will Mumbai's real estate sector benefit from the proposed announcements?

Budget 2021: Will Mumbai's real estate sector benefit from the proposed announcements?

On 1st February 2021, the Union Minister for Finance & Corporate Affairs, Nirmala Sitharaman announced the Union Budget 2021, first of the decade. The real estate disclosures of the budget revolved around the bold Pradhan Mantri Awas Yojana, that was envisioned by our Prime Minister Narendra Modi, by design.

The Mumbai sector, which is healing from the dismal implications of the coronavirus pandemic, is expected not to be optimistic and buoyant with these announcements.

The interest taken on a loan to purchase an affordable home will see a tax exemption of INR 1.5 lakh extended up till 31st March 2022. Finance Minister Nirmala Sitharaman said, “This government sees ‘housing for all’ and affordable housing as priority areas. In the July 2019 Budget, I provided an additional deduction of interest, amounting to INR 1.5 lakh, for a loan taken to purchase an affordable house. I propose to extend the eligibility of this deduction by one more year, to 31st March 2022. The additional deduction of INR 1.5 lakh shall therefore be available for loans taken up till 31st March 2022, for the purchase of an affordable house.”

Developers have additionally been given a tax holiday for the construction of affordable rental housing for migrant workers to ensure regular supply.

The relaxations in the affordable segment have little for the Mumbai-based players because it is almost unimaginable to find an apartment costing less than INR 45 lakhs, the spec of an affordable home by the Finance Minister in this budget, within Mumbai. The incentive instead should have been increased to houses amounting to INR 1 crore, it may have augmented the Mumbai circuit. Thereby, these tax reliefs in the national affordable housing segment will rule out any fervent real estate activity in Mumbai.

Minister Sitharaman further stated in her speech that dividend pay-outs to the Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (INVITs) will see tax reliefs in the form of a TDS exempt, which means more investments in REITs and INVITs can be expected especially since the tax burden has been removed. She said "Debt Financing of INVITs and REITs by Foreign Portfolio Investors will be enabled by making suitable amendments in the relevant legislations. This will further ease access of finance to INVITS and REITs thus augmenting funds for infrastructure and real estate sectors,".

The usual presence of a potential homebuyer from Mumbai in the past year has been investments in ready-made flats rather than under-construction ones which consequentially chokes the city’s developers for funds.

Also, the government has proposed 8,500 km of highways across the county, and an additional INR 20,000 crores have been set aside for FY22. The government has focussed on these investments for states such as West Bengal, Kerala, and Tamil Nadu which will be going to elections in 2021. This boost to the infrastructural sector coupled with the proposed debt financing of REITs and INVITs will enhance connectivity and in turn, allow tourism and real estate to flourish.

However, the lion's share of the allocated funds for infrastructural projects have been deviated from Maharashtra, and in sequence, from India’s financial sector. But from a national context, these infrastructural announcements have most definitely opened up new avenues for investments and markets, especially in Tier II and Tier III cities.

The Mumbai sector was expecting more from this budget reflective of the positive initiatives taken by the Maharashtra State Government. The aggravation of the slowdown due to the pandemic in the real estate sector could have been abated if the government had waived the Goods and Services Tax (GST) on under-construction projects reinforced with an efficient tax break policy. To add to the annoyance of the city’s real estate community, the budget did not mention the formalization of the sector by providing a grant-like industry status.

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