By: Ravi Sinha
Track2Realty Exclusive: Wading in troubled water, when the Indian real sector was looking for direction through the Union Budget 2013-14, the Finance Minister seems to have given symbolic relief to the sector by encouraging the home buyers but at the same time has denied the sector some of the long pending substantive demands. To allow an additional tax deduction of Rs 1, 00,000 on interest rate for home loans up to Rs 25 lakh, the Union Budget has aimed to give more boost in low cost housing segment.
It seems the indecision of the Finance Minister about the real estate has left the sector equally indecisive as to whether to welcome the budget or criticise it. Terming the Budget as realistic the sector repented that it did not have any implications for real estate. There is a general feeling that though this is a moderately encouraging Budget in general, but tepid for the Indian real estate sector.
However, with next General Elections in mind the Finance Minister was pretty clear over his focus on the “aam aadmi” when he announced that the government will launch a fund for urban housing with an allocation of Rs.2,000 crore in 2013-14 to mitigate the acute housing shortage in the country. The National Housing Bank (NHB) will be asked to set up the fund.
The TDS of 1% to be charged on the transfer of immovable property is an obvious move to curb speculation and bring about improved reporting and accountability in high-value immovable property transactions. Considering that the TDS is to be charged on the gross transaction value rather than net gains, sellers will have a cash-flow impact in situations where the sales are at a loss or at zero/negligible gains.
The rate of abatement on homes and flats of above 2000 square feet or costing Rs. 1 crore and above has been reduced from 75% to 70%. Effectively, this translates into an increase in service tax outflow, which means that luxury housing will now become even more expensive.
Industry body CREDAI expressed the disappointment over the Finance Minister missing out on affordable and rental housing and banking reforms. CREDAI, however, praised Union Finance Minister for accepting the suggestion for home loan interest incentives for sub-Rs 25 lakh buyers.
“The developer community is thoroughly disappointed that the Finance Minister has not given any directions to the RBI on the imperative to support real estate funding. We have been suggesting to the government for long to help revive the real estate sector to rejuvenate the economy. CREDAI has been demanding the infrastructure status for real estate which Union Housing Minister Ajay Maken has supported. But the Union Budget did not make any mention of this,” CREDAI National President Lalit Jain says.
However, NAREDCO has welcomed the additional tax deduction for home loans and expects it will boost the sentiment among the home buyers. NAREDCO Sr Vice President Sunil Dahiya expresses optimism that the move will encourage the first time home buyers.
“Most of the first time home buyers fall into this given price range and are salaried class. So, it will help the middle level of housing market where the maximum demand is,” says Dahiya.
But the given provision is only for the first year and with a carry-forward benefit of the unutilized deduction to the second year. Moreover, this price range of housing will help boost residential market only in tier II and III cities and peripheral areas and distant suburbs of metros, but not within the metros, where housing shortage and ever increasing slums are a real challenge to deal with.
This indecision towards real estate has also led much expected infra status to affordable housing has not been granted and a section of developers feel the indecision over the definition of the affordable housing has kept both the government and the sector in dilemma.
However, RICS appreciates Finance Minister’s message for improving the ease of doing business in India; following international best practices for FII & FDI and also improving policy communication to remove distrust and fear among investors – all of which are critical if India wants to attract foreign investment. This message has significant implications for the real estate sector given the crying need for introducing standards and professionalism as well as reducing timelines & transaction costs for project approvals, in order to build confidence in international investors.
Sachin Sandhir, Managing Director, RICS- South Asia says the budgetary announcements this year translate to a loud and clear message for real estate and construction sector. As in the past few years, the government has recognized the importance of funding infrastructure through sufficient government allocation to schemes and encouraging foreign investment. This is indicated in the bold step of doubling the outlay for JNNURM and Rs. 1 trillion target for infrastructure investment.
“We are happy to note that FM has announced an Rs. 2000 crore urban housing fund, in line with our recommendation. FM has also not disappointed home buyers by increasing the home loan exemption limit and providing Rs 1 lakh interest benefit for loans up to Rs. 25 lakh, which will make homes more affordable. The other critical goal of creating better jobs opportunities for youth through emphasis on education spends indeed augurs well for this sector. Built environment sector – a significant and fast growing contributor to economy, also well-funded by government and investors, and does offer immense opportunities for the next generation,” says Sandhir.
KPMG India also says this budget will encourage affordable housing and boost construction. Neeraj Bansal, Director, Risk Consulting, KPMG says, “With current interest rates hovering around 10% for home loans, the entire year’s interest (at current rates) will be eligible for deduction within the extended limit of Rs.2.5 lakh. This is likely to bring a dual impact—impetus to the growth of affordable housing segment, and increase in employment opportunities in the construction sector.”
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