On February 1, 2021, Finance Minister Nirmala Sitaraman presented the Union Budget 2021 that brought along a variety of policies and amendments. Among these, significant reforms aimed at revitalizing the affordable housing sector were unveiled. Let’s explore how the Union Budget 2021 will positively impact the real estate industry.
Benefits to Real Estate from Budget 2021
Boost for Affordable Housing
In the previous budget session of July 2019, the government initiated an interest deduction of up to Rs 1.5 lakh on loans for purchasing affordable homes. Continuing this trend, the Finance Minister has extended this deductible benefit until March 31, 2022, allowing an additional Rs 1.5 lakh to be claimed for loans taken for buying affordable housing. After this date, the concession on loans will cease.
To further stimulate the availability of affordable housing, it's proposed that projects categorized as affordable housing can take advantage of a temporary tax holiday, effective until March 31, 2022.
The Budget 2021 also offers tax exemptions for officially recognized affordable rental housing projects, which is expected to increase the demand for such rentals, especially among expatriate professionals. Consequently, the Union Budget 2021 stands to significantly enrich the real estate landscape within the affordable housing segment.
Real Estate Investment Trusts (REITs)
The budget encompasses provisions allowing for debt financing of InVITs and REITs by Foreign Portfolio Investors, made possible through appropriate modifications in existing legislation. This change is set to enhance the financing ease for both InVITs and REITs, leading to increased capital availability for infrastructure and the real estate sectors.
To promote investment further, the government had previously eliminated the Dividend Distribution Tax (DDT), shifting the tax burden to shareholders. Now, dividend payments to REITs and InVITs will include TDS, simplifying the compliance process.
Shareholders often find it challenging to calculate the dividend income accurately for advance tax purposes. With the new budget provisions, advance tax obligations will only apply post-dividend payment. Therefore, this budget is poised to provide substantial financial benefits to the real estate sector.
Infrastructure Development
The Finance Minister underscored various initiatives aimed at facilitating infrastructural development. Currently, 701 km of conventional metro systems are operational, while approximately 1,015 km of RRTS and metro lines are in various stages of development across 28 cities. New strategies for two innovative metro train technologies termed ‘MetroNeo’ and ‘MetroLite’ have been proposed for Tier 2 cities and suburb areas of Tier-1 cities. These new metro solutions promise greater cost-effectiveness without compromising convenience and user experience.
The central government is set to fund numerous infrastructure projects including:
- Chennai Metro Railway Phase-II, spanning 119 km with an estimated cost of Rs 63,245 crore.
- Kochi Metro Railway Phase-II, covering 11.6 km at an estimated cost of Rs 1,958 crore.
- Bengaluru Metro Railway Project Phase 2A and 2B, a total of 59 km, estimated at Rs 14,789 crore.
- Nagpur Metro Rail Project Phase-II, with an estimated cost of Rs 5,977 crore and Nashik Metro estimated at Rs 2,093 crore.
Thus, Budget 2021 will also bolster the real estate industry through infrastructure advancements.
Stressed Asset Resolution
Public sector banks face the daunting challenge of managing stressed assets, which necessitates a systematic approach for cleaning up their financial records. To address this, an Asset Management and Reconstruction Company will be established to assume control of these troubled debts. The company will then oversee the management and liquidation of these assets to Alternative Investment Funds (AIFs) and other reputable investors for maximum value realization.
Moreover, improvements to the National Company Law Tribunal (NCLT) framework will be implemented along with the establishment of an e-courts system. Additional debt resolution strategies and a dedicated framework for Micro, Small, and Medium Enterprises (MSMEs) will also be introduced in due course.