Clearly, the distinguished Finance Minister of India, Mr. Arun Jaitley, in his 2017-18 Budget speech has given a remarkable push to the real estate sector of India. From a middle-class-buyer perspective, the Union Budget 2017 has given hope to many potential buyers in the country. Mr. Jaitley, in his speech, gave a powerful boost to the ‘Affordable Housing’ campaign by giving it the ‘Infrastructure’ status, thereby promoting participation of private players. The announcement of affordable housing being given the Infrastructure status is likely to act as a catalyst in meeting the ambitious goal of Housing for all by 2022. This will lead to creation of supply for first time buyers and developers who will now have easy access to cheaper funding. Also, under the new provisions, developers will receive one year’s time to pay tax on notional rental income on completing unsold residential inventories. Plus, the holding period for capital gains tax for immovable property is reduced from 3 years to 2 years. In other words, all these benefits are going to play a pivotal role in driving activities in the real estate sector. As the participation of private players will give a rise in competition, which will provide endless options for middle-class and lower-middle class buyers aiming to buy homes.
Since the real estate sector is not included in the category of industry, all the developers, builders and investors often avail loans at a higher rate of interest. As a result of heavy interest rates on loans, builders run short of funds, which results in delay in completion of projects and finally affecting the buyer. The finance minister took note of this vivid problem, and under the Pradhan Mantri Awas Yojana scheme, announced that an interest rate of only 4 per cent and 3 per cent would be charged on loans above 9 lakh and 12 lakh respectively.
On the personal income tax front, the existing tax rate for incomes between Rs.2.5 lakh to 5 lakh has been reduced to 5 per cent. Plus, due to a push to affordable housing, builders will pass on their savings (fetched from long-term finance at lower interest rates) to consumers, and hence making it easy for buyers to get residential properties at lower rates. In addition, Mr. Jaitely announced that the National Housing Bank will refinance individual loans worth Rs.20, 000 crore in 2017-18, which can push home loan rates down to a significant 200 to 300 basis points. This move is welcomed by industry experts as it is likely to have a positive impact on demand.
Other key highlights for real estate sector in India in Union Budget 2017:
- 1 crore rural houses will be built by 2019
- For affordable housing, instead of Built up area of 30 and 60 sq meters, the carpet area of 30 and 60 sq meters will be applicable
- Developers will now avail a tax break of 1 year after the receipt of completion certificate for unsold stock
- Developers will get tax relief on unsold stock as they will have to pay capital gains in the project completion year
- Allocation to Pradhan Mantri Awas Yojana increased from Rs.15, 000 crore to Rs. 23,000 crore
- The National Housing Bank (NHB) will refinance Rs.20, 000 crore loans
- No cash transaction above Rs.3 lakh will be allowed
- New FDI policy under consideration
All in all, the Union Budget 2017 has more positives than negatives for real estate sector of India. The steps mentioned in the budget are a clear indication of the Government’s intention to spur the real estate sector.