Budget 2023: What home buyers can expect from FM Nirmala Sitharaman?

Home loans are one of the most significant ways to buy a dream house from first-time home buyers to individuals who are looking to reinvest in properties. Investing in real estate has ample benefits such as long-term value creation, security, upgrade in lifestyle, and also is packed with various tax advantages among others. Housing for all has been among the most remarkable initiatives taken by the government, and in the upcoming Budget 2023, the same is expected to continue.

Among the most expected factor for home buyers, this budget 2023 would be the increase in deduction limit for interest payments and principal amount on home loans especially to spur demand in a rising interest rates scenario. Also, there is demand for easing in some tax sops, GST structure, and capping in limits for home buyers.

Finance Minister Nirmala Sitharaman is set to announce the Union Budget 2023 on February 1st.

What to expect from this budget?

Ramani Sastri – Chairman & MD, Sterling Developers revealed that the real estate industry is looking forward to the much-needed reforms and incentives in the upcoming budget. This year, the demands go beyond the usual expectation of single-window clearance and industry status. There is an express need for more tax sops for home buyers as well as investors.

According to Atul Monga, Founder and CEO of BASIC Home Loan, the home loan/real estate sector is an important part of the Indian economy and is facing some challenging times due to the rising interest rates. To foster growth in the sector, lenders need to offer competitive loan products with sensible pricing and attractive repayment terms. This can help the sector stay competitive and provide budget certainty to the customers.

At present, the tax cap on housing loans is ₹2 lakh and it has been the same for last few years. During these years, there has been inflation as well. Hence, Satri said, the government should raise the deduction limit for interest payments on home loans from the existing ₹2 lakh a year to ₹5 lakh which will add momentum to housing demand, particularly in the affordable segment.

Sterling Developers MDD believes that there is a specific need for income tax relief on a second home and positive measures with regard to long-term capital gains, which will benefit home buyers in a big way and also stimulate the real estate sector.

He added, "We feel that the capital gains tax rate should be reduced from 20% and the ₹2 crore cap on capital gains for reinvesting in two properties should also be removed. Earlier, there used to be unlimited tax savings on second houses. Hence that was very helpful and people used to rely on real estate as an investment opportunity. There should also be expansion in the definition of affordable housing as this would expand the benefits for homebuyers and therefore boost the end-user demand"

Also, any tax exemption from rental income will also encourage greater investment in residential real estate. Sastri said, "We also expect the maximum tax rate of 30% to be reduced to improve the individual's buying power. The budget should offer a degree of personal tax relief, either by way of lower tax rates or by readjusting tax slabs, which is the need of the hour. There is a strong case for interest subsidy to first-time homebuyers as this will boost sales in the real estate sector, which is not only the second biggest employer in the country but it also creates demand for 200 other industries."

Highlighting that increasing interest rates can have a major impact on the home loan and real estate sectors, making affordability a major concern for buyers, Monga added, "government needs to take steps such as hiking the tax rebate on housing loan interest under Section 24 (b) to ₹5 lakh. Also, the current price band of ₹45 lakh for a property to be considered under affordable housing is not appropriate in most of the cities in India, it should be increased to ₹75 lakh or more."

Further, Anuj Sharma – Chief Operating Officer at IMGC also believes that tax exemptions or deductions for first-time home buyers could help reduce the overall cost of purchasing a home, making it more affordable for them. Also, increased allocation for housing schemes can support an increase in the availability of affordable housing options. Among infrastructure development initiatives could be improvements to infrastructure, such as roads, public transport, and utilities, which can make certain areas more attractive to home buyers and increase the value of properties in those areas. Additionally, to increase the supply of housing, the government could announce measures to make it easier for developers to build new housing projects or measures to encourage the construction of more affordable housing.

On home loans, Sharma added that lower interest rates on home loans can make it more affordable for home buyers to borrow money to purchase a home. Also, reducing the required down payment or easing eligibility criteria for home loans are some of the measures that are expected in regards to easing rules for availing home loans that could make it easier for home buyers to secure financing.

Apart from increasing of tax breaks on interest and principal amount on home loans from 2 to 5 lakhs, Amit Goyal, CEO, of India Sotheby's International Realty also expects a bold, growth-oriented budget with announcements that will encourage capital investments and FDI inflows in India. The tax sops on home loans interest and the principal amount are expected to cushion the blow of rising home loan EMIs. He concluded, "this has been the industry’s long-pending demand and there's no better time than now to do so."

As per Shiv Parekh, Founder hBits, the deduction limit for interest payment on home loans should be increased from the existing ₹2 lakh a year to ₹5 lakh and the 1.5 lakh limit of principal deduction on housing loans should be increased to 5 lakhs to push the affordable as well as luxury housing segment, which is the need of the hour. He also believes that commercial real estate too needs a greater push, especially in Tier 2 and 3 markets as there is huge scope for growth in those markets. Reduction in tax rate from 30 to 25% would definitely help the overall sector.

There are also expectations for change in GST structure. Monga believes the current GST structure for under-construction and affordable housing creates an additional burden on developers, leading to a higher cost of properties for buyers. This leads to a higher price of a house because the GST on steel and cement is 18% and 28%, respectively and developers cannot claim tax credits for GST paid on input items. To reduce this burden and increase the affordability of properties, the government can consider restoring Input Tax Credit (ITC) in the upcoming budget. Further, capping GST at 1% for under-construction projects and reducing raw material costs such as cement and steel can help encourage more people to buy affordable homes.

Furthermore, Raj Khosla Founder and MD – of MyMoneyMantra.com believes the definition of affordable housing is currently based on bank loans given to individuals for the construction or purchase of homes. Affordable housing in metro cities is currently capped at ₹45 lakhs; this limit should move to at least ₹75 lakhs.

Also, Ravi Subramanian, MD & CEO, of Shriram Housing Finance Ltd said, "Housing for All has been amongst the most significant initiatives driven by the GoI. We expect the govt. would continue to build upon schemes such as PMAY to emphasize the importance of the same. The rural low-income housing segment with ticket sizes of ₹8-15 lakh and borrower income of under ₹3 lakh annually is the segment where the need for adequate housing is acute. To address the demand-supply mismatch in rural housing, we expect some special incentives for customers/builders in this segment. With limited projects catering to consumers here, any benefit from the government’s side would aid in easing concerns on both supply and affordability."

Further, Subramanian stated that there is also an expectation of a revision in the limits of Section 80C and Section 24 for principal and interest rebates on home loans. With inflation being elevated over the last couple of months, the construction cost has increased, and any rationalization of these limits will help the end consumer.

Notably, Shishir Baijal- Chairman & Managing Director, Knight Frank India highlighted the need for a 100% tax holiday for affordable housing projects under Section 80IBA and a 100% exemption on rental income too.

In regards to section 801BA, Shishir said, the 00% tax holiday for affordable housing projects under Section 80IBA, was available for projects which are approved till March 31, 2022. This section allowed developers to claim 100% tax exemption on profits subject to several qualification criteria including the approval deadline. Since this is arguably the most materially meaningful measure to boost the viability of affordable housing projects, we believe it is important to revive this measure once again.

Meanwhile, Shishir also expects a 100% exemption for rental income up to ₹3 lakh for houses up to ₹50 lakh. According to him, this will encourage individuals to invest in the affordable housing segment which suffers a massive housing shortage. Given the low rent yields, owners of such houses avoid letting them out. This measure will directly incentivize such owners to rent out their houses to the targeted segment, augmenting the efforts to increase housing stock in this segment.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.