The Union Budget 2017 has been a mixed bag offering good and not so good news. Neeraj Bansal, Partner and Head, Building, Construction and Real Estate and India, KPMG, shares his opinion on the Budget.
Bansal spoke with Magicbricks and voiced the key highlights of the Union Budget 2017. Bansal says, “The two important developments were 1) Infra Status to Affordable Housing; and 2) Capital Gains Tax period reduced to 2 years from 3 years.
These two points are good and will bring relief to home buyers.” Having said that, Bansal also mentioned, “The Budget could have done more in terms of interest rate home loan deduction which right now is a meagre Rs 2 lakh.”
The principal amount that is clubbed with Section 80CC has not seen much change. Higher deduction would have helped buyers. Bansal ended by saying, “Lots could be achieved from this year’s Budget.”
Anuj Puri, Chairman & Country Head, JLL India
The Budget that was being touted as a make-or-break one for the future of India, and the Government made some big announcements on the infrastructure front and also on beneficial changes to the affordable housing segment.
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. Nor did it raise house rent deduction limits. However, 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. A new Credit Linked Subsidy Scheme (CLSS) for the middle-income group with a provision of INR 1,000 crore in 2017-18 was announced. Also, extension of tenure of loans under the CLSS of Pradhan Mantri Awas Yojana (PMAY) was increased to 20 years from the existing 15 years.
Moreover, one crore houses are to be built by 2019 in rural India for the homeless and those living in ‘kaccha’ houses. Allocation to PMAY has been increased from Rs. 15,000 crore to Rs. 23,000 crore in the rural areas – and affordable housing will now finally be given infrastructure status. This is 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.
Under the latest provisions, developers to get one year’s time to pay tax on notional rental income on completed unsold residential inventory. The time limit for capital gains to be considered as a long term gain has been reduced to 2 years from the earlier 3 years. More supply will enter the housing market now.
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. The 30 sq. m. limit will only be applicable within the corporation limits of the 4 major metros. For fringe areas of these metros and all other cities, it will be 60 sq. m. on carpet area. This will effectively serve to increase the increase the number of projects falling under this segment.
Promoters of affordable housing projects will benefit from the following announcements:
- Instead of the earlier timeline of completing their projects within 3 years, they now have a cushion of two additional years.
- JDs liability to pay capital gains tax will be in a year after the project is constructed. This will be beneficial for land owners and land prices can ease; this benefit can be passed on to home buyers.
On the infrastructure front, a total investment of INR 3, 96,135 cr was announced in the Budget 2017. Budget allocation for highways will go up to INR 64,000 crore in FY18 from the earlier INR 57,676 crore. Allocation for national highways has been stepped up to INR 64,000 cr from INR 57,676 cr. The rural roads’ construction work will be accelerated to 133 km of roads per day in 2016-17, as against 73km/day during 2011-14. A new metro rail policy will be announced.
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.
Anshuman Magazine, Chairman, India and South East Asia, CBRE
Overall, the Union budget 2017 augers well for real estate, affordable housing and the infrastructure segment. The affordable housing sector is finally set to get infrastructure status. This was a long awaited announcement. While we are yet to read the fine-print, this is indeed an important step to promote access to priority lending thereby spurring supply of low cost housing units across various cities in India. Relaxation in area measurement as well as completion timelines to seek tax exemption are, welcome steps. Further, the government has also increased allocation under the PMAY scheme. This will encourage home buyers and further boost participation from the Private players.
The airport authority of land act amendment is yet another positive move which will allow development of land around the airports. This will further improve infrastructure and more importantly increase funding for the development of the airports. This is over and above the record allocation made to the overall infrastructure sector.
In order to encourage greater fund flows into the economy, the FM has announced abolition of the FIPB. While a clear policy outline is yet to be revealed, this is another positive step to liberalize FDI policy framework and ease regulatory hurdles in attracting investments.
The government has also been accommodative of the concerns of the real estate sector. The relaxation on long term capital gains, joint development agreements, tax rebates for builders will help reduce their tax liability.
While greater rebates were expected in individual tax rates, nonetheless the rebate for individuals earning upto 5 lacs will help increase their disposable incomes. This might help spur consumption and also have a positive impact on demand for housing.
Ashish Puravankara – Managing Director, Puravankara Ltd.
True to its expectations, Budget 2017 has spelt out roadmaps and allocations across various initiatives of the Central Government and the Finance Minister has done an excellent job of managing the expectations. Initiatives to Real Estate industry has been spoken at length where the sentiments have been largely positive.
- The revisions to capital gains tax through reduction in holding period from 3 years to 2 years with a consequential revision of the base year to 1 April 2001
- Payment of capital gains by landlord on Joint Development agreements in the year of completion is a welcome move. This will enable Real estate companies to pursue development without further infusion of capital in the acquisition.
- Revision of Built-up area to Carpet area is a great move to push for apartments in affordable housing category.
- The according of Infrastructure status to the Affordable Housing will boost investment in this category.
- Extension of period for carrying forward the MAT Tax from the existing 10 years to now 15 years is a welcome move.
Furthermore, fiscal deficit for 2017-2018 has been estimated at 3.2% of the GDP which may lead to a lower borrowing programme, this is an excellent move and will go a long way to meet the country’s growth objectives.
Largely, we were anticipating encouraging announcements for the industry and in the light of the upcoming RERA and GST implementation, we expect renewal of consumer confidence in the sector.
Abhishek Lodha, MD, Lodha Group
This is a budget which will enable empowerment of middle-class India, improving lives of millions. Reduction in Income Tax rates both for earners up to Rs. 5 Lakhs and MSME’s, will help in increasing their purchasing power and shall also impact demand for affordable housing positively.
More importantly, the simplification of rules qualifying affordable housing, tax holiday under 80 IBA and infrastructure status to this segment are significant positive moves by the government. These initiatives will in turn boost the overall economy as there will be more participation by developers in this area.
Reduction in home loan rates has already proven to be beneficial for housing demand and it will further increase with the help of above measures.
Rahul Shah, CEO, Sumer Group.
In Arun Jaitley’s speech on Budget 2017-18, one of the much needed changes in the real estate sector was that the affordable housing will be given infrastructure status which is likely to result in increased participation from private players like us. The allotment of infrastructure status would boost investment from private players in the affordable housing campaign. It’s a good move by the government.
Real estate Investment Trusts (REITs) will open ways for the realty sector to get easy funding and ensure timely completion of projects. From our perspective, it would be beneficial if home buyers can come under the lowest possible slab of the GST, thereby, enabling greater affordability for potential home buyers.
Chintan Sheth, Director, Sheth Corp.
The budget 2017 was supposed to be a very critical affair post demonetization as far as the realty market was concerned. There were huge expectations from the Finance Minister Mr. Arun Jaitley and he showed some positive hopes for industry going forward.
The first positive from the budget was the proposal of tax relief to developers on unsold inventories. The second important point 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. Also, the tax liability for developers involved in the joint development agreement will arise only in the year of selling the property. These benefits can further be transferred to the buyers by reducing their financial burden while purchasing their dream home.
Affordable housing constitutes the largest demand from home buyers and the Government has already reflected in the budget with the policies geared towards that end. It has allocated Rs. 23000 crore for the Pradhan Mantri Awas Yojana (PMAY) and plans 1 crore houses for the poor by 2019. Also, the granting of infra status to the affordable housing segment will mean lower borrowing costs for the sector and thus addresses the margin issues that private players in this segment face. These initiatives will boost the affordable housing segment and will help in Government’s mission of “Housing for All”.
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.
- M Pai, ED & CFO, Orient Bell Limited.
From the economy perspective, the government has laid down broad framework for growth in the coming years. The Finance Minister’s budget has shown a 24% increase in expenditure which aligned with a perspective of ‘Transform, Energies and a Clean India’. The intention to boost affordable housing with an infrastructure status is no doubt a positive move along with a tax deduction to the MSME sector. In addition, the resolutions and various initiatives to promote ‘Swachh Bharat Abhiyan’ and ‘Make in India’ will give a push to the tiles industry.
Rajesh Krishnan, MD & CEO Brick Eagle
The Affordable Housing sector could not have asked for a better budget. The Union Budget for 2017-18 has brought in a series of policy directives that are a positive move to the Affordable Housing Sector. Especially, the Government’s move to impart infrastructure status to this sector. It’s been a long standing ask that has finally materialized. We have affordable housing projects in Maharashtra, Tamil Nadu, Gujarat and Rajasthan. Conferring infrastructure status will make borrowing for projects easier due to longer tenures of loans and better terms. The government has already eased norms for registered FPIs for investment in the infra sector (subscribe to bonds issued by unlisted infra companies) which will prove beneficial to the Affordable Housing Sector. Extending the project duration from 3 to 5 years to avail the tax break under section 80-IBA of Income Tax Act, is another major move in favour of developers. These steps will lead to a multifold increase in affordable housing. For the affordable home buyer, rates are likely to come down further with The National Housing Bank (NHB) taking on incremental 20,000Cr refinance. Also, increasing the loan tenure for CLSS from 15 to 20 years would lower the EMIs, thereby enhancing affordability. Not forgetting, increasing allocation to PMAY to Rs. 23,000 Cr which will further boost this sector.
Avneesh Sood, Director, Eros Group
The government has yet again presented a Budget that will bring about a cheer to the masses. From favourable changes in the personal income tax structure to heavy investment plans for the infrastructure along with the according of infra status for the affordable housing segment and so much more, real estate sector is sure to directly and indirectly benefit from this budget in the near future. Amongst the big decisions, an outlay of almost 4 lakh crore has been planned for infrastructural development across the country, no tax for earners upto INR 3 lakh a year and no property tax for developers on unsold inventory till one year after completion certificate is issued. With such announcements, we are projecting the demand for budget housing to multiply that will also allow a positive drift in the momentum for the realty sector.
Deepak Kapoor, President CREDAI-Western U.P. & Director, Gulshan Homz
Announcement of infra status for the affordable housing segment in the Budget will open up new avenues for the developers planning to offer budget housing units and will make it easy and comfortable for them to get finance from lending agencies. Affordable housing developers will now be eligible for various government incentives and subsidies, where this infra status could also mean that the government might come out with land parcels for such development in future. With the basic slab of income tax now reduced to half the effect, people will have access to higher disposable income which can now be utilised for saving and investment purposes, where real estate will look attractive. Also, to promote foreign investment in the country, FDI is planned to be liberalised further.
Rakesh Yadav, Chairman, Antriksh India
The popularity and acceptance of this budget was clearly visible for the realty sector as we saw the real estate stocks driving the day in the share market. The decision of granting infra status for the affordable housing segment along with the rebate in personal income tax announced by the government will provoke the developers to shift their gears and develop affordable housing projects; which is now sure to meet the demand as well. One major issue faced by various builders across the major Tier 1 cities of the country is the inventory pile up. The tax break up of one year post the receipt of the completion certificate for the project, for the unsold stock, offers a slight breather for the builders. Overall, this budget looks quite favourable for the realty sector and its buyers in the long run.
Rajesh Goyal, Vice President CREDAI-Western U.P. & MD, RG Group
As anticipated, a populous budget has been announced by the government which will allow the young generation to save more and invest further. This budget saw the government offering several benefits to the realty sector, at the same time missing out on a few important decisions. Single window clearance system is still not implemented across the country which is hampering the delivery schedule of the developers. Amongst the major hits, the criteria for affordable housing has been changed from built up area to carpet area basis. This will allow affordable housing segment to look more lucrative for both, developers and buyers. With the income tax rebate for the first slab and affordable housing incentives in place, we will now observe the youth of the country looking out at realty sector as an avenue for investment or residing.
Abhishek Bansal, Executive Director, Pacific Group
With today’s budget announcement, the affordable housing segment and the retail industry will see the biggest boom. The moment tax structure is simplified and relaxed, the spending power of people increases and this spending is directly contributed towards either savings or investments. Although, the young earning age in India is expected to spend and invest more rather than save, thus retail industry will witness increased footfall in the upcoming financial year. Real estate sector on the other hand, will benefit from the affordable housing development and hence, developers will now be eager to plan accordingly. Buyers interest will now shift towards low budget houses as these units will now come with a reduced price tag with the developers gaining access to easy finance from lenders; well supported by recent rate cuts and announcements.
Ashok Gupta, CMD, Ajnara India Ltd.
With a mammoth budget investment plan for the infrastructure of the country announced, various untapped regions will gain connectivity with major cities. This development will further broaden the avenues for realty development across the country. Affordable housing has yet again been the prime target of the government as it looks to fulfil the dream of housing for all. With the initial tax slab relieved and infra status announced for the affordable housing segment, upcoming project launches will witness majority of affordable projects. In a nut shell, this budget will provide a massive thrust to India’s realty sector which has been picking up pace gradually over the years.
Ashwani Prakash, Executive Director, Paramount Group
Union Budget 2017-18 was likely to give some respite to the realty sector and it was highly expected that this sector might get industry status this year, but this has not happened. However, the FM has still taken an appreciable step in giving infrastructure status to affordable housing and increasing the scope of the same. The decision of increasing the period of completion for affordable housing projects from 3 to 5 years is also a welcome move. Reduction in interest rates for home loans is already in place, relaxation in the individual tax limit would also encourage the home buyers to come forward.
Pradeep Aggarwal, Co-Founder & Chairman, Signature Global
Driven with the view to provide houses to all at affordable rates, government’s move to grant infrastructure status to the affordable housing segment in the country along with the relaxation especially in the first slab of the personal income tax will not only spur growth in the construction of affordable housing but also enhance the demand for the same. As the disposable income increases, people will be inclined to invest towards property. With the lending interest rates lowered and purchasing power increased, we will witness a steep rise in affordable housing demand across the country, which will now be well met with the upcoming supply.
Kapil Wadhawan, Chairman & Managing Director, DHFL
Undoubtedly a historic and landmark Union budget presentation by the Hon. FM combining several firsts –with the change in the age old conventions of date, the merging of the Railway Budget with the Union budget, dropping the distinction between planned and non-planned expenditure for the first time, makes it truly unique. Additionally, I believe this was the least volatile budget with very little impact on the market indices that remained fairly flat without any movement for about 2 hours! A first also with the affordable housing sector gaining infrastructure status.
On the whole we believe, it’s an extremely well-balanced and a progressive budget based on the vision of Transform, Energise and Clean [TEC] India with strong focus and clarity on key themes of rural India and farmers, youth and employment, development of underprivileged, prudent fiscal management, housing and real estate, taxation and infrastructure.
The Infrastructure status given to affordable housing will has been a long-pending demand by the real estate sector that will provide a boost in volume of construction activity across the country. This is a strong catalyst to meet the objectives of Housing to All by 2022 and will be a strong wind under DHFL’s wings that will help us significantly augment out outreach. Credit off-take towards affordable segment of housing will augment supply especially for both stake holders – the first home buyer and developer — who will now have access to cheaper funding. Several strong steps through Increased allocation of Rs 23,000 crore for PM Awas Yojana, the extension of Affordable Housing Programme to 5 years, benefit to be based on carpet area instead of built-up area, NHB (National Housing Board) to refinance loans worth Rs 20,000 crore, proposal to complete 1 Crore houses By 2019 for the homeless and those living in mud houses – all indicate a very strong emphasis on the housing and real estate sector and an acknowledgement of the huge scarcity of affordable homes, focus on people at the bottom of the pyramid and importantly the role of the Real estate sector to domestic economic growth. The government’s focus on affordable housing will definitely help making the term more acceptable to developers, who are now not only entering this segment with confidence but also talking about it openly. There is now considerable goodwill attached to such a move, and affordable housing obviously makes very distinguished business sense.
The focus on rural, agricultural and social sectors that includes education and skill development are thoughts and initiatives in the right direction and need to be lauded. The Government’s initiative to continue efforts towards a Skilled India and better employability through the innovation fund will be created for secondary education, youth education and commitment to structural reforms in medical education will definitely create a deep impact on domestic social and economic growth and India’s perception even globally. These initiatives will strengthen entrepreneurial and academic talent among Indian youth and create better opportunities.
The budget also had a strong infrastructure flavour with the focus on real estate, rural and urban housing thrust, encouraging insurance companies to mandate higher investment in housing, a focus on irrigation and dairy sectors – are clear indicators of strengthening the domestic economy. Theagricultural sector is expected to grow at 4.1 per cent this fiscal and they have been lent the necessary support for true development to take place through the larger target for agri credit od Rs. 10 lakh crore this year, the Fasal Bima Yojana coverage increased by 40% and the micro irrigation fund – all of which are extremely well timed and expected to strengthen the agri economy.
India has already taken an active step towards digitisation. There was also an expected and strong emphasis on digital literacy and encouragement to adopt the digital way of life through e-market platforms.
The other encouraging thing to notice in the budgetary announcements was the continuing thrust on the infrastructure sector. The allocation of Rs. 1 lakh 31,000 crore towards the enhancement of the roads, waterways, aviation and railways sectors comes as another big positive. It was heartening to note that the Government has a long term vision and is looking at the all-round development of the infrastructure sector by looking at the development of the roads, ports and railways and civil aviation on the one hand and invigorating natural resources, power to augment its potential over the next couple of decades.
We also look at this Budget as one which has been quite responsible on the deficit and borrowings, with the deficit target of 3.2% — much in line with expectations. Coupled with fall in crude prices which is a major input cost in our system, we can surely believe that inflation is set to remain moderate. The global spotlight is already on India and through the government’s stance to make India a more attractive destination through actions as a proposal to amend FDI policies, enhance transparency in political funding, totally clamp down on black money generation, I believe we are able to send very strong signals to the global economy that the best of India is yet to be unearthed and that as an economy, India continues to be a sought after trade destination.
Rajesh Doshi, Managing Director, ACME Group
“The Union Budget 2017 is a very encouraging & favorable budget for Housing Industry. Government has realized the hurdles & challenges faced by the Realty sector and its buyers. They have considered all the challenges faced by the housing industry and tried to resolve most of them.
The biggest announcement is awarding Infrastructure status to affordable housing. “This will not only give the biggest boost to PMs ‘Housing for all scheme’ but also enable developers to cater to the citizens who cannot afford housing today. Due to this status, developers like us who are working on these projects will get access to lower cost funds and hosts of other benefits. Moreover, by increasing the size of the affordable homes by changing from built-up to carpet area allows for better planning of the house.
Additionally, the government has taken into considerations that these are generally larger projects and take longer to complete and thus has increased the time line of project to 5 years from 3 years. NHB refinancing 20,000 crore of housing loans will enable HFC and other institutes further lower the interest rates to these segments.
There is cheer even for projects which do not fall under the affordable segment. One of the major change is that the holding period for capital gains tax for immovable property is now reduced from 3 years to 2 years. This will help people who want to sell existing properties and upgrade. People will also get benefit of indexation so tax incidence will be much lower. Indexation for older properties is moved to 2001 from 1981. Again, huge tax break for people who want to upgrade from older flats. All these decisions will boost the realty sector and allied industries like steel, cement – much needed impetus to the remonetizing economy.
However, some benefits for mid-income, upper-income realty buyers would have been good, especially in the metros.
From the developers side, the decision that the landowner entering into joint development agreement for development of the property, shall be subject to capital gains tax upon completion of the project is a good one and usher in lot of clarity and ambiguity in this aspect.”
Ssumit Berry, Managing Director, BDI Group
Affordable segment: This announcement is a landmark for the real estate sector which will open new avenues for the affordable housing segment. We welcome and appreciate this decision of government, it will help the sector get various benefits of infrastructure sector which was a long time demand of the realty industry.The new measure will reduce costs for developers and attract more investors. It is great push for the housing for all vision and will also benefit the first time buyers.
Pankaj Bansal, Director, M3M
Luxury Housing Segment: We welcome the government decision to bring affordable housing in the infrastructure sector. Also, definition of Affordable housing changed to make it more practical to build and market. Now, we can expect focus on building more affordable housing projects, also Rural Housing will get big push. The borrowing costs for the home buyers has already come down significantly. Time period for Long Term Capital Gain is reduced by 33%, with new base period. Many have been deferring their decisions to buy homes. All these factors will be considerably significant in helping to expedite their decision. This will make investment in the real estate sector lucrative providing a surge in consumption demand. Having said that Year 2017 will be the year of affordable housing.
R K Arora, Chairman, Supertech Ltd.
The budget for financial year 2017-18 has the potential to give much needed impetus to affordable housing in the country. The Real Estate Developer community appreciates that the Government is serious in achieving the objective of Housing for All by 2022, which is evident from the grant of Infrastructure Status to affordable housing. The other positive steps to revive the real estate in the Budget are additional refinance of Rs. 20000 crores through NHB. This is good news for both developers and investors in real estate projects. Further, the permission to complete Affordable Housing Projects in 5 years instead of 3 years to qualify for Tax exemption in 80IB is a relief. The new Credit Linked Subsidy Scheme for Middle Income Group with allocation of Rs. 1000 crores in the Budget will also revive the demand. The benefit to individual taxpayers by raising exemption limit and slab restructuring benefit would also boost purchasing power and demand. The relief in capital gains tax on real estate properties announced in the Budget is a welcome step as it would help enhance investment as well as demand in real estate sector. The reduction in fiscal deficit is indicative of a bright economy.
Srinivasan Gopalan, Group CEO, Ozone Group.
Overall I feel that this is a positive budget for housing and rural development. Affordable housing is set to have a huge advantage, with it being given infrastructure status. This effectively means access to other benefits that come with infrastructure status including easier availability of loans and investments from insurance companies, who incidentally are mandated to make 25% investment in the infrastructure segment. There will also be the multiplier effect on allied industries including steel and cement which will consequently prove to be a boost for the real estate sector. The decrease in the income tax percentage from 10% to 5%, for individual tax payers upto Rs. 5 lakhs per annum, is seen as welcome benefit to the middle class. This will increase the disposable income and increase the spending power. This combined with attractive housing loan interests rate will have a positive impact on Real Estate sector. I was hoping for a single window clearances for new projects and a reduction in stamp duties, which would have lent further impetus to the ailing Real Estate sector. There is no mention of this in the budget.
Vijay Pawar, Managing Director, Mirador Group
Considers this budget as a shot in the arm for the housing for poor in India. Several announcement of the budget go on to make a dream of the house for the poor a reality. The infrastructure status to affordable housing will create better access to finance, faster clearances and more organized way of building homes. This will definitely result in the reduction of costs. The likely increased in housing size because of carpet area being considered as a measurement for affordable housing help people get bigger houses. Last but not the least the cut in the tax rates at the lower income bracket will make it easier for poor to spend on their housing which is considered critical for personal and family in our society. In addition, National Housing Bank will refinance Rs 20,000 crore in loans only if it helps the case of all the parties involved. Also, reduction in the holding period will compel builders in timely delivery to their customers. Surely, these measures and reforms seem to be taking India one step closer to achieving our dream of “Housing for All”. Clearly this is a great pro poor initiative.
Gaurav Jain, Managing Director & CEO, Jindal Realty Pvt. Ltd.
Through the announcements made in the Union Budget 2017-18, the government continues to work on its reformist agenda. Extending the incentives for low cost housing and affordable housing, the announcement of including the segment under infrastructure will provide the necessary boost to the segment. This aligns to the overall target of providing low cost housing of the government under the Pradhan Mantri Awas Yojna (Housing for all by 2022).
It will help developers of affordable housing, who will now be able to access large pool of foreign and domestic funds focussed on the segment. We will now see the launch of more and more affordable housing projects in the country.
However, the industry expected more support on the personal taxation front, as the incentives announced give push to sales. More savings through tax rebates strengthens the hands of consumers. With more rebates and savings, homebuyers across slabs can invest in the housing market. However, the Union Budget announcements have touched upon only the base income slab and have ignored other higher income slabs, as against the expectations of the industry.
Gaurav Gupta, Director, Omkar Realtors
Finance Minister impetus on housing for all by 2022 by way of given affordable housing an infrastructure status is indeed a welcome step and will bring in the momentum towards achieving the goal. The allotment of infrastructure status would also boost investment from private players in the affordable housing campaign. Capital gains on joint development agreement to be taxed only at product launch, 1 year tax exemption from national rental income from unsold inventory and reduction of long term capital gains tax period from 3 to 2 years provide respite to investors/ developers of real estate. This helps especially those holding real estate inventory/ stock. This is a great move to providing tax relief to developers in the residential sector. Also with banks having surplus cash to lend to the home loan seekers, doubling the lending target to Rs 2.44 lakh crore will bring in more buyers to invest in real estate. Finally better re-financing of housing loans will further give a push to the affordable housing and real estate sector at large.
Brijesh Bhanote, CMO- Paras Buildtech.
We welcome the announcement of providing infrastructure status to the affordable housing sector. This will provide necessary incentive for private developers to participate in the sector as cheaper financing options will be available. Measures related to Joint Development Agreement will also provide some relief to the sector already suffering from demonetization woes. Overall, we feel that the necessary impetus provided to infrastructure development such as road, highways and affordable housing is a win-win situation for both the consumers and developers.
Brotin Banerjee, Managing Director and CEO, Tata Housing Development Company
Infrastructure status to affordable housing comes as a landmark announcement for the consumers and the real estate industry. A long-standing demand of the sector, the government has realised that housing & infrastructure can be two pillars to increase GDP and accelerate economic growth.
Easy and dedicated access to institutional financing, higher limit on external commercial borrowings will attract more investments and assure sustained growth of affordable housing in India, making it the core driving segment for real estate. On the other hand, long term financing at lower rates will reduce costs of construction for developers allowing them to pass on benefits to consumers. The new status will increase the resource allocation for the sector, catalysing housing supply and reducing the supply gap.
This budget has brought us a step closer in achieving the mission of providing Housing for all. Implementation of these schemes will be essential for its success. Clarity on the definition of ‘affordable housing’ will be useful. This is very beneficial for Tata Housing as a pan-India developer which is currently developing more than 40 million sq. ft. of affordable housing.
Rahul Nagar, MD, XRBIA Developers
It’s a dream budget for affordable housing. Infrastructure status will transform the sector much like deregulation did to telecom in the 1990’s. A 100 million houses across india is now a reality and xrbia will lead the supply train.
Rashmi Deshpande, Associate Partner on Real Estate
The Union Budget 2017 has set out certain proposals which are a welcome move for the real estate sector:
Low Cost Housing: The criteria for low cost / affordable housing has been changed from built-up area of 30 / 60 sq mtrs to carpet area of 30/60 sq mtrs, thus making the low cost – affordable housing segment more lucrative for the builders and also making the segment more attractive for the buyers. With the change in criteria from built-up area to carpet area, the purchasers get more spacious homes and the builder is able to market the property to a larger segment of buyers.
Also the tax break of 1-year post receipt of the completion certificate, for the unsold stock, gives a slight breather to the builders.
Reduction in Income tax rate for basic slab: Will help broaden the tax net and also increase the disposable income in the hands of the tax payers coming within the category. This, coupled with the incentives on low-cost housing and the reduction in interest rates by banks, is likely to promote thrust in the affordable housing segment.
Taxation of Capital Gains of Joint Development Agreement: The budget proposes to change the prevalent practice and has clarified that the landowner entering into a joint development agreement for development of the property, shall be subject to capital gains tax upon completion of the project. This is a significant change, which is much needed, to bring clarity on the aspect and avoid litigation with the department, which invariably a norm was given the current ambiguity.
Tapan Sangal,Executive Director of Lotus Greens
The granting of Infrastructure Status to affordable housing will give impetus to the accomplishment of the stated goal of “Housing for All”. The Infra status will provide access to easier financing and associated tax benefits for such projects. The change in norms for constructed area from built up to carpet will also result in many more projects coming under the affordable housing tag, especially in the four metros. The increase of time limit for completion from three to five years for availing 100% profit deduction for affordable housing will encourage more realtors to take up such projects.
Some of the other benefits accruing to the segment included the lowering of the holding period for built-up properties for availing long term capital gains from 3 years to 2 years as well as granting respite in the notional rental income for property for a year. For the property being developed under JDA, one is now liable to pay capital gains tax only in the year of completion. The addressing of these small but crucial issues that were being demanded are likely to benefit the sector tremendously.
However, one major disappointment was the non-granting of industry status to the Real Estate sector.
Kishor Pate, CMD – Amit Enterprises Housing Ltd.
The Budget has announced that 1 crore rural houses will be created by 2019, and the outlay for rural housing under PMAY is Rs. 23000 crores from the previous Rs. 15000 crores. This 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
The total allocation for infrastructure is a whopping Rs. 396135 crores in 2017-18. This is very good news for the real estate sector, as the correlation of infrastructure with real estate growth is a well-established fact.
Affordable housing has finally been given infrastructure status. This 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.
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. 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.
Anil Pharande, Chairman – Pharande Spaces
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.
The Budget has focused on improving rural connectivity through higher kilometers road construction per day. Also, railway stations redevelopment has received a shot in the arm, with 27 stations to be allocated in the current year. This will help connect more areas and create new development corridors. It has also announced that the PPP mode will be used for select tier 2 airports, and a relaxation of AAI Act for commercial usage of land. The Government will also announce a metro rail policy for implementation and financing of such projects, which will generate additional employmentand therefore interest in home purchasing.
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.
REACTIONS FROM FINANCE INDUSTRY
Anand Natarajan, Managing Director, Grihashakti – Fullerton India Home Finance Company Ltd
The thrust on affordable housing is timely and represents a significant step forward in the government’s programme of providing shelter to all. We also welcome the decision to accord infrastructure status to affordable housing schemes – this will allow greater liquidity, at lower cost and help improve supply. The additional benefit is all of this will also provide a meaningful leg up to employment and income generation opportunities in this sector – all measures that we support whole-heartedly.
Anil Kothuri – President & Head of Edelweiss Retail Finance
The budget has managed to achieve a fine balance between fiscal prudence, rural spending, expenditure growth and tax stability. The finance minister has contained the fiscal deficit at 3.2%, while increasing the expenditure by 8.5% (in FY17-18), with virtually no changes to the tax regime.
In line with the Prime Minister’s speech on new year’s eve, the budget carries forward the government’s agenda of ‘Housing for All’ and of rejuvenating the SME sector, post demonetisation.
There is focus on the affordable housing sector, which is over 90% of all homes constructed. In addition to allocation for the construction of 1 crore housing units in rural India, the government has made home ownership affordable by conferring ’Infrastructure status’ on the construction of affordable homes. There is also a larger allocation (Rs. 43,000 combined via NHB & PMAY) to subsidise home loan interest rates through the National Housing Bank and under the Pradhan Mantri Aawas Yojana (PMAY).
It has also given an impetus to the resale market, by reducing the long-term Capital gains on houses after two years of holding.
Further, the budget is not inflationary. Consequently, interest rates are expected to be benign, which will lower the EMIs on home loans.
The SME sector will benefit through lower tax rates (25%) for all companies with a turnover of up to Rs. 50 crore. The enhanced lending under MUDRA (Rs. 2.44 lakh crore) will also help over 20 lakh SMEs avail working capital loans. This will help partly offset the higher tax compliance intended from this sector.
Thus, the middle class will benefit owing to these measures – on affordable housing, SMEs and lower personal tax rates up to Rs. 5 lakhs.