The Union Budget declaration has revealed a bunch of hopes and disappointments for the real estate sector with the former dominating most part of it.
Arun Jaitley signalled a few positives that will help the sleeping property scenario wake and rise a bit. Though there won’t be pathbreaking impacts still this will be a refresh of sorts for property investors.
According to Joe Verghese, Managing Director of Colliers International India, “the Budget seems to be heading to have minimal direct impact on the Real Estate industry. This comes as a significant departure from the last three years.”
The Union budget will definitely focus more on the social aspects of the economy such as creating more jobs, constructing a future-ready infrastructure and improving home buying abilities for the general public.
Affordable Housing to observe a rise
Affordable housing has been the cornerstone of property discussions since the start of this year and it will continue to reign the union budget 2018 – 19 as well.
The government is looking to leverage the spot on the response in this sector by introducing more projects and levying lower taxes on the same. To add to this, Santosh Rungta, president of CREDAI, said, “The establishment of a dedicated affordable housing fund under the National Housing Bank for priority sector lending will provide a further impetus to the development of housing in this segment,”
This is set to boost up the economy in several ways. One, that the industries that serve the affordable housing sector will gain growth due to the subsequent rise. Two, that the relaxation of income tax to diminish the tax difference between the circle rate and real estate acquisition rate, will be seen in positive light.
Government is also looking to boost the rural economies by introducing aids for farmers in several ways. This is another prominent proof of the budget bringing a significant change in the society.
“Real estate is a function of multiple parameters and bearing of the overall economy. So if there is an overall boost to the economy through farm spending and so on; then we will see a rub-off effect on the real estate sector,” he told BusinessLine.
The private sector was hardly moved by the Union budget announcements as there was no significant improvement for home constructors. There were no tax benefits given to the construction sector who is pressed under the GST implications and need a relief from the complex mechanism that is currently operating in it.
Further, the housing loan tax deduction limit which was hoped to be increased up to 5 lakh per annum is still stuck on its original point of 2 lakh per annum, adding disappointment.
This is the last full budget before the upcoming 2019 elections and clearly, not a lot except affordable housing and rural development has come out of it for the real estate sector.
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Real Estate sector has strong co-relation to the economic growth of a country. Slow down in real estate sector has strong impact on slowing down of economy in general and vice-a-versa. India has a huge deficit in affordable housing. Despite a scenario of large need of housing, the real estate sector has been experiencing slowness due to various reasons. The most prominent being distance between affordability and availability.
To bridge the gap and making effort to increase availability of affordable housing,
the government has announced various measures on infrastructure front and tax related measures which will push up demand and supply of affordable housing.
The significant measures announced in the Budget 2017 are;
Status of “Infrastructure” to Affordable Housing:
To boost slowdown-hit real estate sector, the government announced infrastructure status to affordable housing to encourage investment in this segment. This means that developers can access foreign funds at a cheaper cost by way of debt, and it will be a ‘priority sector lending’ for banks and institutions.
Construction of one crore rural houses by 2019:
Focusing on the housing in rural sector, the government has proposed to construct 1 crore houses by 2019 for homeless and those living in kaccha houses.
National Housing Bank to refinance Rs 20,000 crore loans:
The National Housing Bank will refinance individual housing loans of about Rs 20,000 crore in 2017-18. This will enhance the availability of housing loan at cheaper rates.
Pradhan Mantri Awas Yojana to get Rs 23,000 crore:
Allocation for Pradhan Mantri Awaas Yojana – Gramin increased from` 15,000 crores in 2016-17 to 23,000 crores in 2017-18.
Higher Infrastructure allocation of Rs.3,96,135 crores:
The total allocation for infrastructure development in 2017-18 stands at Rs.3,96,135 crores. In the road sector, the Budget allocation has been stepped up for Highways from Rs.57,976 crores in BE 2016-17 to Rs.64,900 crores in 2017-18.
Enhanced Road Connectivity:
2,000 kms of coastal connectivity roads have been identified for construction and development to facilitate better connectivity with ports and remote villages.
Profit linked Income Tax deduction liberalized:
Under the scheme for profit-linked income tax deduction for promotion of affordable housing, carpet area instead of built up area of 30 and 60 Sq.mtr. will be counted.
The 30 Sq.mtr. limit will apply only in case of municipal limits of 4 metropolitan cities of Delhi, Mumbai, Kolkata & Chennai while for the rest of the country including in the peripheral areas of metros, limit of 60 sq.mtr. will apply.
No Notional Tax on stock in trade for 1 year:
For builders for whom constructed buildings are stock-in-trade, tax on notional rental income relating to unsold house will only apply after one year of the end of the year in which completion certificate is received.
Holding period for Long Term Capital Gain (LTCG) reduced:
Reduction in the holding period for computing long term capital gains from transfer of immovable property from 3 years to 2 years. Also, the base year for indexation is proposed to be shifted from 1.4.1981 to 1.4.2001 for all classes of assets including immovable property.
Tax Relief on Joint Development Agreement (JDA):
For Joint Development Agreement signed for development of property, the liability to pay capital gain tax will arise in the year the project is completed
Investment in Long Term Bonds expanded:
The scope expanded to include investment in bonds issued by more institutions in addition to NHAI & REC.
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