The Union Budget comes with a lot of expectations, especially amidst the recovery from the pandemic. We expect that the government’s agenda of ‘Housing for All’ will see a major push through this Budget as well.
As a Housing Finance Company (HFC) we also expect announcements which will enhance/ renew of prospective buyers towards owning a house and further propels investments in real estate as an asset class. Needless to say the real estate sector, along with manufacturing and services, is also a huge employment generator, and any positive activity in this sector aids the overall buoyancy in the economy.
We feel, keeping in mind the real estate price inflation over the last decade or so, as a first step, the government can consider enhancement in a tax benefit for interest in housing loan to Rs 3 lakh from the current levels of Rs 2 lakh. The limit can be higher up to Rs 4-5 lakh in metro locations, which will be in line with the real estate price difference which exists between metros and other major cities.
Also, the enhancement in 80C benefits especially with respect to limits for housing loan principal repayment by retail borrowers would be beneficial. The introduction of loss on housing property should be revisited and the limits on the same can be enhanced as well. This would encourage more end investments in the sector.
The initiative should be taken towards liquidity enhancement for small HFCs as well. Schemes/measures like Targeted Long Term Repo Operations or TLTRO and Partial Credit Guarantee or PCG etc., which have seen considerable success over the last few months, should be a part of business and be used by the regulator whenever there is an inherent need in system for the same. Also some kind of SOPs should be given to encourage mutual funds to move back into the debt capital markets so they can invest in long tenor bonds of investment-grade companies.
In the medium to long-term, the government may look at easing of External Commercial Borrowing (ECB) guidelines for HFCs. The investment concentration/group exposure limits etc. can be looked upon with a view to facilitating easier foreign currency borrowing for the sector.
In turn, this will ease the volatility in the domestic real estate markets. On the other hand, encouragement should be given to insurance funds/pension funds to invest in long term debt issuance of HFCs. This will help both parties on Asset Liability Management as HFCs look for long term debt and pension/insurance funds need long term debt investment avenues.
Introduction of housing bonds is another avenue which the government may look at where investment by retail investors is allowed. The finance minister may consider in granting special status to HFCs, at par with the banking sector. This will help in smoothening of any kind of Asset Liability Management mismatch for HFCs who are engaged in financing long tenor retail assets.
The thrust should be given to the initiative taken by the Prime Minister for the housing sector, which is ‘Housing for All’.
Overall, there are initiatives for both HFCs and the end-consumers which are expected, and we do hope that the Union Finance Minister Nirmala Sitharaman will look at the real estate sector favourably.
The writer MD and CEO, Shriram Housing Finance
Union Budget 2021: Enhance tax benefit in interest on housing loan to Rs 3 lakh from current Rs 2 lakh.
