Between April 2022 and December 2022, the RBI increased the repo rate by 225 basis points.
With this hike, consumers in the market for a loan have had a tough time. This is particularly true for retail home loan borrowers who financed their loans with a floating interest rate.
This has happened since any change in the repo rate trickles down to to the current home loan interest rates. With further repo rate hikes expected in 2023, the real estate industry and homebuyers are hoping for some relief from the 2023 Budget.
A The primary reason for this expected relief is to keep the momentum of the increased sales seen in the real estate industry during the last year. In 2022, the real estate sector saw tremendous growth in demand, even exceeding the sales performance of 2014[EW1] the previous peak of the real estate sector. Moreover, the industry is set to[EW2] reach a market size of $1 trillion by 2030 and a 13% contribution to the nation’s GDP by 2025.
Real estate industry experts have proposed multiple recommendations to sustain the demand. Here’s a look at the proposed expectations with regard to home loans from Budget 2023:
- Increasing the limit under Section 24(b)
Currently, as a home loan borrower, you can claim an interest deduction for the interest on your home loan under section 24(B). The deduction, however, is limited to ₹2 lakhs for a self-occupied property.
Industry leaders have proposed that this limit be increased to ₹5 lakhs as a means to offer home loan borrowers some relief. Extending the limit will help boost affordability which, in turn, will boost demand.
- Modifying the limit under Section 80C
Section 80C of the Income Tax Act offers a deduction for various investment options, including principal repayment of home loans. At present, the deductions under this section are capped at ₹1,50,000. This is the total limit for all eligible investments.
In light of rising costs, the industry has proposed that there be an additional or separate limit of ₹1.5 Lakhs for the principal repayment of a home loan. By providing an exclusive limit for home loan principal repayment, prospective homeowners will be more inclined to invest in real estate. This also benefits existing home loan borrowers.
- Relaxing the criteria under Section 54
This section allows property owners to off-set their long-term capital gains from the sale of their property by using it in buying or constructing a new property. However, during the construction of the new property, the exemption is allowed only if the construction is completed within 3 years of the sale of the old property.
Given that the industry has experienced an exponential growth in demand, the construction of residential projects has scaled in many ways. This, more often than not, may result in construction not being completed within the deadline of 3 years.
At the moment, homeowners cannot avail this deduction if the construction is incomplete after 3 years, rendering them unable to off-set their gains. As a result, experts have proposed that this criterion be relaxed and extended to 5 years. This would allow home buyers to avail the benefits and keep up the demand momentum.
- Revising the affordable housing price band
Currently, for a property to be considered under affordable housing, the price band is ₹45 lakhs. With rising inflation and home costs, the price band is inappropriate for all regions of the country.
The industry has proposed that this band be increased to ₹85 lakhs or more for cities like Mumbai and up to ₹65 lakhs for other major cities. The revised limits would help ensure that the price band is in alignment with the market dynamics of various cities.
These proposed recommendations can offer great relief to home loan borrowers, especially in light of rising inflation and expected repo rate hikes. However, there are lenders who offer home loans at an affordable rate even at the moment, which can help reduce the financial burden of in the middle of an otherwise increasing costs.
However, it is crucial to choose from the leading lenders after a thorough review and comparison of the offers. This is something you can easily do on the Bajaj Markets App. Available on the Google Play and App Store, this app gives you access to a range of financial companies that you can avail at affordable rates in just a few clicks. Download it today to meet your investment, credit, insurance and other needs all in one place!