Budget 2017-18: Affordable Housing Gets the Lion’s Share 

Reforms in the budget are in line with government’s vision of ‘Housing for All by 2022’.

The Union Budget 2017-18 will be remembered in the history of real estate sector. After the recent demonetisation move, the sector finally got a reason to cheer with the Finance Minister granting the long-pending infrastructure status to affordable housing. The move is likely to attract larger investments in the sector by making funds available at relatively lower cost to developers. That’s not all! Developers building low-cost housing will also be eligible for a slew of incentives, tax benefits, and institutional funding.

Considering our Prime Minister’s ambitious goal of “Housing for All by 2022” and the fact that he is already halfway through his tenure, the move definitely seems to be a step in the right direction. So, how will the infrastructure status help the sector? Well, in simple words, the status will give builders access to funds at lower interest rates, the benefits of which are likely to percolate down to the end-users.

Welcoming the move, Surendra Hiranandani, CMD, House of Hiranandani said it was a reform-oriented budget where the expenditure was well directed towards economic growth and development. “Infrastructure status for affordable housing will lead to higher participation by private players in this segment as they can have access to institutional funding and other government subsidies.”

Though the stage for better days was set three years ago, the story was likely to unfold in the coming years.  In this backdrop, Bluering Realtech looks at the hits and misses of this budget.

The Hits

Last year, the Finance Minister’s scheme for profit-linked income tax exemption for promoters of affordable housing received much applaud, which encouraged him to make this scheme more lucrative this year.

  •  Push to Low-Cost Housing: The change from built-up area of 30 / 60 sq. mt. to carpet area of 30/60 sq. mt. for affordable housing will make the low cost – housing segment more lucrative for the builders. Buyers, on the other hand, will get spacious homes. However, it is high time now that the government redefines the definition of affordable housing keeping different cities in mind.
  • Tax Break: With mounting unsold inventory, builders got a huge respite with the tax break of one year post receipt of the completion certificate for the unsold stock.
  • Capital Gains on JDA: The decision to tax capital gains on Joint Development Agreement upon completion of the project is a great move. Additionally, reduction of long term capital gains to two years from earlier three years will provide respite to both domestic as well as NRI investors.
  • Reduction in Income Tax rate: Reducing the base tax rate to 5 per cent from the earlier 10 per cent on income of between Rs 2.5-5 Lakh will encourage more and more youngsters to take the plunge by increasing the disposable income in their hands. This coupled with reduced interest rates on home loan is likely to infuse positive sentiments in the market.
  • Increasing time frame: Understanding the operational issues faced by the developers, the government has eased the norms pertaining to the time frame of completion of project from current three years to five years.

The Misses

  • Explaining about the misses, Anuj Puri, Chairman & Country Head, JLL India said, “the Budget missed out on giving any additional income tax incentives to first-time home buyer or providing higher tax savings on housing loans and house insurance premiums. Nor did it raise house rent deduction limits.”
  • Single-window clearance and GST rules regarding real estate sector were also not touched upon in the budget.

Our Verdict

It wouldn’t be wrong to say that with a slew of pro-sector reforms and initiatives, the Union Budget has definitely generated a wave of optimism in the realty sector.

After demonetisation hitting the sector hard, everybody was waiting for the budget with bated breath. With state elections just round the corner, will the reforms announced in this budget influence the poll results? Well, let’s wait and watch!

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