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Union Budget 2021: Pro infrastructure and investment

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Given that the economy is well on its path to recovery, Union Budget 2021 has focused on enhancing expenditure while keeping fiscal targets at bay in the short term. This Budget focuses on augmenting infrastructure with a special focus on expediting urban infrastructure projects which will act as a strong catalyst in driving real estate in urban areas. There is also a continued thrust on the agriculture sector which is likely to result in higher incomes and drive consumption.

While the government has not announced any significant fresh policies and / or programs pertaining to real estate, it’s commitment towards boosting affordable housing remains intact. At the same time, the government has provided requisite incentives and tax benefits to promote the start-up ecosystem and drive gig economy.

Commitment to affordable housing remains unabated

  • Extension of benefit u/s 80EEA to avail additional INR 150,000 interest deduction on home loans for first time homebuyers
    • This benefit (currently available for home loans sanctioned till 31st March 2021), has been extended until 31st March 2022. This will continue to benefit first-time homebuyers.
    • Considering that most homebuyers fall in the lower and mid-income segments, this tax benefit will boost demand substantially.
    • This will significantly benefit first time homebuyers who will enjoy the benefits of interest subvention under the CLSS scheme and the extended tax benefits at a time when home loan interest rates are at their lowest and developers are offering lucrative deals.
  • Time extension to claim 100% tax deduction on profits from affordable housing projects until March 2022 u/s 80IBA
    • This extension will ensure continued interest from developers towards affordable housing projects and help achieve the “Housing for All” objective.
    • Nearly one-third of the newly launched projects across the top seven markets catered to affordable housing in 2020 and this proportion is only expected to increase.
  • Tax exemption for affordable rental housing projects
    • 100% tax deduction on profits from developing and building rental housing projects notified by the Central Government
    • This will fuel higher investments and increase the supply of affordable housing units.

Fuelling investment in real estate

  • Debt financing of REITs /InVITs by foreign portfolio investors
    • The leveraging window will increase further and would provide an opportunity for REITs/ InVITs to acquire more assets in their portfolio. This will lead to the listing of more REITs/ InVITs in 2021. The unlocking of value of real estate assets especially in office segment will provide growth capital for the sector. Investments in infrastructure projects will have access to low cost offshore funds.
  • Monetisation of surplus land by Government companies / public sector enterprises
    • The increased supply of land will provide impetus for growth of real estate especially in metros and Tier 1 cities where land availability is an issue.

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