Affordable housing received a boost in Budget 2021 as the Government recognised the segment as a priority area and announced measures to propel housing demand.

With the intent to promote affordable housing projects, Finance Minister Nirmala Sitharaman, in her Budget speech on February 1, 2021, announced an extension in the tax holiday for affordable housing projects by another year. In 2020, the Government had extended the timeline for availing tax holiday in case of affordable housing until March 31, 2021. Further extension in this deadline is likely to pave the way for additional new launches in the segment.

To ensure the availability of affordable housing for migrant workers, the Government also announced a tax exemption for notified rental housing projects in Union Budget 2021. To apprise, the affordable rental housing project is an integral part of the Pradhan Mantri Gareeb Awas Yojana-Urban, which aims at addressing the rental housing needs of the migrant population.

Tax exemption for such projects will provide the necessary thrust to rental housing and lay a framework for the construction of rent asset class. Also, this holds the potential to impact the rental yield and increase investor and developer participation.

This was indeed a long due expectation as the experts were eagerly looking forward to significant support for the affordable housing sector, especially in metro cities. As opined by Kaushal Agarwal, Chairman, The Guardians Real Estate Advisory, ”It is a pragmatic and forward looking Budget. The Government’s decision to extend tax holiday for affordable housing projects is indeed a step in the right direction.”

In addition to the extension in the tax holiday, the government has also extended the deadline for the first-time homebuyer to avail additional interest deduction of Rs 1.5 lakh per annum (Section 80EEA) on home loans by another year, i.e. March 31, 2022. The previous timeline for availing interest deduction on housing loans was March 31, 2021.

Expressing his elation on the announcements, Pradeep Aggarwal, Founder and Chairman, Signature Global Group avers, “The demand for affordable housing is at an all-time high. The focus of the government on infrastructural development and MSMEs will lead to job creation, which will further boost the demand in this segment as people will become financially stable. Given the latest announcements, the developers will focus more on fulfilling the increased demand in the market, and therefore, new launches are likely to happen. Looking at the trends from the last one year, affordable housing will get more buyers in 2021. Also, new developers would want to venture into this segment.”

Echoing similar sentiment, J C Sharma, Vice-Chairman and Managing Director, SOBHA Ltd, says, "By extending the period for availing tax holiday by another year, the Government has clearly indicated its emphasis on  the affordable housing segment. Section 80 EEA of the Income Tax Act provides tax benefit up to Rs 1.5 lakh on the interest paid on loans taken for affordable residential housing. This benefit is over and above the tax benefit of Rs 2 lakh, available under section 24 (B) of the Act. The proposed steps will strengthen the overall real estate sector and boost confidence amongst buyers and builders alike."

The extension in the tax holiday up to March 2022, along with the extension in the interest will help incentivise the purchase of affordable residential spaces across the country. Simultaneously, it will help in achieving the government’s mission of providing housing to all by 2022.

Overall, the Budget 2021 seemed to be balanced. While it has rightly addressed the concerns of the affordable housing developers, the long-pending demand of the industry to expand the definition of affordable housing and include homes priced more than Rs 45 lakh within its ambit, is still unmet. Moreover, no announcement related to GST input credit for under-construction residential stock and commercial assets appears to be a little disappointing for the sector.