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10th July 2019

Effects of Budget 2019 on the Real Estate Sector

On the 5th of July, 2019, Nirmala Sitharaman proposed a Union Budget that received mixed reactions from different sectors and industries. The budget was presented keeping a vision for the next ten years in mind. The main focus was on improving infrastructure and boosting foreign investment while also providing incentives and benefits for startups.

The real estate sector, which has been a strong pillar behind the development of India, has benefited from the Finance Minister’s vision but the advantages have been reserved for the housing sector. The general opinion has been that “the budget had a few hits and several misses,” which basically translates to a mixed review for the proposals made.

Proposals made that affect the Realty Sector
The government has tried to improve the conditions of the realty sector, especially after the decline in the last few years due to liquidity crunch. The Budget has led to some reforms that may lead to growth of the industry in the long run.

  • Tax deduction for home buyers: A proposal of additional tax deduction of ?1.5 lakhs on the interest paid on home loans taken upto March 2020 has been made, especially to attract first time home buyers.

 

  • Rental laws reformed: The government proposed model tenancy laws to replace the archaic laws. Reforms to promote rental housing with the aim to conquer shortage of homes in cities will be pushed, as well.

 

  • Increasing liquidity: The government shall encourage public banks to buy high-rated assets of financially sound NBFCs up to ?1 trillion during FY20, for which the government will provide a one time six-month partial credit guarantee for the first loss of up to 10%. Increasing the liquidity will help the real estate developers which shall help the realty sector grow, eventually.

 

  • Investment in infrastructure: The Finance Minister proposed investing ?100 lakh crores in the infrastructure sector over the next five years. Improvement in the infrastructure of a country will in turn, lead to growth of the real estate industry.

 

The government mainly focused on affordable housing, keeping in mind their vision for 2022 - ‘Housing for All’. They aim to build about 1.95 crore houses under the Pradhan Mantri Awaas Yojana (Gramin) Scheme. In the urban areas, the main aim of the government has been to promote rental housing by proposing to change the tenancy laws. The overall effect of the Budget seems to benefit first time home buyers and reduce the liquidity crunch that might help revive the declining real estate sector. For the first time in a long time, it seems like the real estate sector is back on track to development and growth.

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