What changed for Indian real estate sector after the Union Budget announcements? Can they provide the demand push that was expected of the Budget? Samantak Das explains.__________The Covid-19 pandemic disrupted economies and businesses across the world. In the first half of 2020, noted analysts and thinkers began predicting a paradigm shift in the way different stakeholders will perceive real estate in times to come. At the same time, it was important to realise that the sector has experienced several disruptions led by technology, regulation and changing end-user preferences. And these disruptions have only expanded the gamut of real-estate offerings while redefining the way we live and work. The initial green shoots of recovery were seen in the third quarter of 2020 and gained further momentum. As a result, the year closed with a promising outlook. Residential sales recovered to over 50% of pre-Covid levels reported in 2019. On the commercial side, net absorption saw an impressive 81% recovery compared to the average annual net absorption from 2016 to 2018. The Central Government made necessary and timely interventions through liquidity infusion, fiscal support and reform-driven investments. As businesses reopened in a staggered manner, several state governments also complemented the initiatives of the Centre and the Central Bank to spur demand through attractive incentives and tax benefits such as time-bound reduction in stamp duty in select states, and so on. All these measures focused on providing relief and support in the following ways: Immediate relief to developers, landlords and homeowners with respect to debt service obligations Keep viable businesses afloat while demand was adversely impacted Incentivise investments and home purchases. These measures as well as concessions have also helped enhance consumer sentiment, thus boosting consumption, resulting in increased traction in the real-estate sector. While we have seen initial signs of growth in the last two quarters of 2020 on a sequential basis, actual market transaction volumes continue to be lower compared to pre-Covid levels. At this critical juncture, as the economy continues to unlock with businesses returning to normalcy, Budget 2021 was closely looked at by different stakeholders within the real-estate domain. The key expectations were to provide a strong demand push while laying out the contours for the next phase of economic development in the post-Covid era. The Union Budget 2021 has focused on enhancing expenditure while keeping fiscal targets at bay in the short term. It laid stress on augmenting infrastructure with a special emphasis on expediting urban infrastructure projects, which will act as a strong catalyst in driving real estate in urban areas. While the Government did not announce any significant fresh policies and/or programmes pertaining to real estate, its commitment towards boosting affordable housing remained intact. Some key announcements in the Budget and its impact on the real-estate sector are summarised below: Extension of tax holiday on affordable housing projects will ensure uninterrupted supply in the affordable segment with a strong pent-up demand. Nearly one-third of newly launched projects across the top seven markets catered to affordable housing in 2020 and this proportion is only expected to increase. Extension of benefit to claim additional interest on home loans will continue to incentivise first-time homebuyers in the affordable segment. First-time homebuyers will enjoy the benefits of interest subvention under the Credit- Linked Subsidy Scheme (CLSS) and the extended tax benefits combined with the lowest prevailing home loan interest rates and developers’ lucrative deals. Extension of tax holiday for affordable rental housing projects is a logical step after the Government announced the Affordable Rental Housing Complex (ARHC) scheme last year to deal with housing for urban migrant workforce, an issue that was further exacerbated during the lockdown. This will fuel higher investments and increase the supply of affordable housing units. Establishment of an SPV for monetisation of surplus land with government ministries/departments and companies and public-sector enterprises will result in value unlocking of the potential of land for housing and commercial purposes. It will result in availability of land at lower costs for real-estate development and complements other affordable rental housing initiatives with an aim to get closer to the mission of providing housing for all. Flexibility in raising debt from foreign portfolio investors (FPIs) in REITs/InVITs. The leveraging window will increase further and will provide an opportunity for REITs/ InVITs to acquire more assets at relatively lower costs. This will also encourage listing of more REITs/InVITs in 2021. The unlocking of value of real- estate assets especially in the office segment will provide growth capital for the sector. The above-mentioned initiatives announced in the Budget are expected to spur demand, thereby aiding the ongoing recovery cycle in real estate. At the same time, the real-estate industry expected further expansionary benefits by proving more liquidity in the hands of homebuyers. Its other expectations related to higher allocation under the SWAMIH fund and reliefs under GST to reduce effective tax burden, among others. However, it will be critical to watch out for the effective implementation of the already announced initiatives, especially land monetisation and the affordable rental housing scheme. While the Government is taking the right steps to deal with the issue of urban housing for the lower income group through the affordable rental housing scheme, the concerns of unfinished residential projects and unsold inventory in the larger markets continue to loom. Looking ahead, consolidation of the residential market is likely to gain further momentum with strong emphasis on credibility and financial strength. And on the other hand, de- densification and splitting up of offices are likely to gain centre stage with greater acceptability of flex spaces. We will see fast-paced adoption of technology and the focus on health, sustainability and wellness is likely to see renewed vigour across asset classes. Within the office space, strong market fundamentals, sustained IT sector growth, strong potential in emerging sectors such as data centres, healthcare and e-commerce and the increasing presence of institutional investors will continue to drive the office market in the coming period. On the residential front, developers will have to continue to recalibrate their business models to align their supply with the present demand, which is more price-sensitive. The recovery is expected to continue in the next few quarters fuelled by affordability (attractive pricing, lower interest rates), reinforced desire to own a house and renewed interest from certain buyer segments, such as NRIs. Indeed, the real-estate sector is all set to shield itself from short-term jolts and is poised to transform the challenges presented by the pandemic into viable business opportunities in the medium to long term. Author: Dr Samantak Das, Chief Economist and Executive Director━Research & REIS at JLL India manages the nationwide research team and implements best practices across economic & policy analysis, forecasting, financial modelling, market research and feasibility. He is responsible for maintaining JLL’s leadership position in Thought Leadership.