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Top #10 Budget Implications of Realty on FY18 Budget

Top #10 Budget Implications of Realty on FY18 Budget
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After facing a massive slump in growth prospects post demonetization drive in country, the real estate industry has finally taken a sigh of relief with the big announcements in FY18 Budget.

Finance Minister, Arun Jaitley has given a strong push to the low-cost housing segment in Real Estate by giving ‘Affordable Housing & Housing for All’ an infrastructure status.

With an announcement of the total allocation for infrastructure is a whopping Rs. 396135 crores in 2017-18. With many big announcements like the outlay for rural housing under Pradhan Mantri Awas Yojana (PMAY) by about 50 percent and the ease of capital gains tax norms by FM, there is going to be a long term demand in the real estate industry.

#6 key highlights from Budget:

  1. Affordable Housing for all is been given the infrastructure status.
  2. NHB to re-finance the individual loans worth INR20,000 cr.
  3. Allocation of INR 23,000cr. under PMAY to INR 15,000, in past. 
  4. Tax relief on capital gains tax norms.
  5. Cash transactions are not allowed more than the limit of 3 lakhs. 
  6. Holding period for capital gains tax reduced from 3 to 2 years. 

Let us take a look at the hits and the misses given by the industry players on Union Budget 2017-18. 

Top #10 Budget Implications 

Hits:

  • Cheaper loans for developers of budget housing

The announcements made by FM will help address the housing needs of the homeless and those living in 'kachha' houses in the rural areas, and potentially help reduce pressure on urban areas if it is in conjunction with employment generation, said Kishor Pate, CMD - Amit Enterprises Housing Ltd

He also added further that his will mean cheaper loans for developers of budget housing and significantly boost the Government’s target of Housing for All by 2022, The Affordable housing has seen a significant change in the Government’s existing scheme, with the qualifying size requirements now changed from built-up area to carpet area of 30 sqm and 60 sqm for projects within the municipal limits of the large 4 cities.

  • Tax Relief on capital gains

One of the important benefits for the realty in Union Budget 2017 was the reduction of long term capital gains tax period from 3 years to 2 years which will provide relief to both investors and developers.

Holding period for immovable property reduced from 3 to 2 years to achieve long term status for capital gains tax – will encourage more transactions through banking channels, said Maadhav Poddar, Tax Partner, Real Estate practice, EY India.

  • A decline in interest rates

"On the all-important front of personal income tax, the existing tax rate for incomes between Rs. 2.5 lakh to 5 lakh has been reduced to 5%, and taxpayers in other categories will also save Rs. 12,500. While this will definitely boost the overall consumption story, it unfortunately will not have any significant impact on housing demand”, said Kishor Pate, CMD - Amit Enterprises Housing Ltd.

However, the FM did indicate that lending rates are likely to come down in the wake of the demonetisation move. A decline in interest rates would have positive implications on housing demand.

  • Relief to developers in terms of selling housing inventory

Project completion timelines for affordable residential projects have now been increased to 5 years, which comes as a relief to developers of such housing as it will allow them more time to sell their inventory, said Anil Pharande, Chairman - Pharande Spaces.

He also added further that the Government has announced that 250 proposals for electronic manufacturing worth 1.2 lakh crore have rolled in. Obviously, this has a direct potential correlation to employment generation and therefore demand for housing in and around the identified manufacturing nodes.

  • An increase in appetite for second home investors

With five tourism zones to be established via Special Purpose Vehicles (SPVs), we will see an increase in tourism to the focus areas, with a direct boost to hospitality. It will also increase appetite for second-home investors focused on the tourism-related rental income in these areas.

The Government has announced that 250 proposals for electronic manufacturing worth 1.2 lakh crore have rolled in. Obviously, this has a direct potential correlation to employment generation and therefore demand for housing in and around the identified manufacturing nodes. 

  • Cheaper sources of finance will raise more supply in housing market

“The Budget announcements for realty are very significant, because it will provide the vital budget housing segment with cheaper sources of finance including, but not restricted to, ECBs (external commercial borrowings). Also, re-financing of housing loans by NHBs (National Housing Bank) can give a leg up to the sector”, said Anil Pharande, Chairman - Pharande Spaces.

The applicable exemptions for affordable housing will now be recognized on the basis of carpet area of 30 sq. m. and 60 sq. m. instead of on the basis of saleable area. 

  • FIPB will give the real estate sector access to significantly more funding

On the FDI front, the FIPB (Foreign Investment Promotion Board) is set to be abolished and a new roadmap is to be announced in the next few months. This will give the real estate sector access to significantly more funding than it has today. A new FDI policy is under consideration, which promises to liberalize the FDI regime further. 

  • No changes in excise and service tax will help raise sale of properties

There is no change in excise and service tax rates due to upcoming GST. Introduction of GST will help in curbing multiple taxes which is a positive sign for the industry and result in buyers coming forward to buy property, added Mr Sheth.

Misses:

  • No additional I.T. incentives to first-time home buyers

The Budget missed out on giving any additional income tax incentives to first-time home buyers or providing higher tax savings on housing loans and house insurance premiums, according to Anuj Puri of JLL India. 

  • Didn't raise house rent deduction limits

It did provide some direct tax relaxation to the lowest income earners, and gave some clarity on the designated beneficiaries under the Pradhan Mantri Awas Yojana, but we expected deduction in rent limits, which unfortunately wasn't there', said Anuj Puri of JLL India. 

 

Edition: March 2017

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