Published on: Feb 6, 2017 @ 19:12
The Union Budget 2017 promises to continue economic reforms, and has brought some policy directives to give a much-needed fillip to the real estate sector. Union Finance Minister Arun Jaitley, in the Budget 2017-18, has granted the much demanded infrastructure status to ‘affordable housing sector’ and thus makes it qualify for the benefits of many tax exemptions.
The grant of infrastructure status would allow the real estate developers to enjoy the associated benefits like government tax concessions and increased flow of foreign and private capital into their projects. Moreover, it will open the doors for developers to take easy institutional funding at concessional rates of interest for constructing affordable homes.
With borrowing costs going down, the overall cost of construction will also be reduced. So, the developers will certainly pass on the benefit to the home buyers. So far, Developers were reluctant to touch the affordable housing segment despite high demand. But now, Easy excess to capital at lower rates and tax incentives along with the infrastructure status for affordable housing will encourage more developers and even big brands to get into this segment.
The Budget also proposes to modify the measurement norm of affordable housing scheme from built-up area to carpet area of 30 sqm and 60 sqm. The 30 sqm limit will apply only in case of municipal limits of 4 metropolitan cities and for rest of the country including the peripheral areas of metros, limit of 60 sqm will apply. This move will expand the area and make houses more spacious.
Earlier, buyers of affordable housing had got a boost with the announcement of interest subvention scheme for housing loan by Modi government. Under this scheme, there would be an interest subvention of 4 per cent and 3 per cent on loans up to Rs 9 lakh and Rs 12 lakh respectively.
The Budget 2017-18 proposed to extend the time of completion of the projects from current three years to five years to boost affordable housing. Developers will now have more time to complete their project. Home buyers will also be benefited by this move as the government provides tax deduction up to Rs 2 lakh on purchase of residential properties. But it gets reduced to Rs 30,000, if the buyer has invested in a project, which is not completed within the period of three years.
The Finance Minister proposed to make change in the capital gain taxation provisions in respect of land and building. Investors can now exit properties at a faster rate as the holding period for immovable property has been reduced from 3 years to 2 years for long-term capital gains tax. At present, the houses which are unoccupied after getting completion certificates are subject to tax on notional rental income. In a major relief to housing developers, the Finance Minister has changed the time period for calculation of notional rental on unsold stock. Now, developers will get one year’s time to pay tax on completed but unsold stock.
The Budget 2017 also brings some benefits to real-estate investors. A long-term capital gain is taxed at a concessional rate of flat 20 per cent and also qualifies for various exemptions under section 54, 54f and 54EC.
The finance minister has also proposed to shift the base year for indexation from April 1, 1981 to April 1, 2001 for all classes of assets including immovable property. This will give benefits to the tax payers, as the market price of immovable property has increased more during the period, as compared to the increase in the cost inflation index announced by the government from time to time.
Finance Minister also announced increased budgetary allocations for both the rural and urban component of Pradhan Mantri Awas Yojna (PMAY). Allocation to PMAY Gramin has been increased from Rs 15,000 crores in 2016-17 to Rs 23,000 crores in 2017-18.
Finance minister Arun Jaitley also abolished the Foreign Investment Promotion Board (FIPB) which will provide the necessary impetus for FDI inflows across industries. Over the last few years, the government has brought many majors to attract Foreign Direct Investment (FDI) in India. Since, more than 90 per cent of the total FDI come through an automatic route, the government has decided to abolish FIPB in 2017-18.
In this Budget, it was announced that the National Housing Bank (NHB) will refinance individual housing loans of about Rs. 20,000 crore in 2017-18.
To continue the positive impact of the demonetisation drive, the government plans to disallow any cash transaction above Rs 3 lakh.
The budget also proposes to complete 1 crore houses by the year 2019 for the houseless and those living in kutcha houses.
For individual home buyers, there is no change in home loan exemptions whereas the tax payers were expecting the tax limit to be increased. Individual tax payers were expecting either a separate limit of principal repayment of home loan, or enhancement of the existing limit of Rs 1.5 lakhs.
Budget 2017 would positively impact the real estate sector and will provide the much required boost to the affordable housing segment. It would boost investment of private players in the affordable housing campaign and facilitate higher investment, and in turn, achieve the government’s ambitious goal of ‘Housing for All by 2022’. Reduction in the holding period and amendment in the base year indexation will also considerably reduce capital gains tax and provide tax relief.
Overall, it is a positive budget for the real estate sector as these tax changes will improve the sentiment of the industry which has been badly hit in the last few months due to the demonetization drive.It is likely to increase the government’s tax base through immovable property and encourage the mobility of capital assets. Combined impact of Modi led government’s earlier initiatives and budget reliefs will provide much awaited boost to the real estate sector.
Ajay Verma, founder and writer of TheHousingWorld, a real estate and mortgage news website. He has over fifteen years of rich experience in the above mentioned industries.