It’s Budget time yet again, and hosts of
expectations and aspirations for ‘relief’ from the stressed real estate sector
as usual. The Union Budget 2017 presented by Finance Minister Arun Jaitely
indeed has something to cheer about for the realtors but lack of futuristic approach
to revive the sagging sector has disappointed many.
Infrastructure
Status to Affordable Housing
The Modi government has surely appeased the middle
class and neo middle class by announcing infrastructure status to affordable
housing segment and providing income tax benefits to the lower income earners
as the tax rate for income between Rs 2.5 lakh to 5 lakh has been reduced to 5%
and taxpayers in other categories can also save upto Rs 12,500 per annum.
The move will create more disposable income for home
buyers of the respective salary brackets, who can look for suitable real estate
investments in the coming months.
The infrastructure status to affordable housing will
infuse fresh impetus into developmental projects as developers can now look for
cheaper loans to start low-cost housing projects in tier II and Tier III cities
and also in rural areas. The Government’s proposal to build ten million homes by
2019 in rural areas under Pradhan Mantri Awas Yojana (PMAY) will open more options
for home buyers and real estate investors to park their funds in good housing
projects.
Buy
and sell in two years!
The bringing down of capital gain time limits for
properties to two years from three years will benefit both investors and second
hand home buyers as the later will have more options to choose the best
available property in lowest price. For investors, they can offload properties
after two years of holding and go for more profitable realty investment.
Major
Misses
Though the Budget has several micro proposals to
boost realty sector, lack of big-ticket announcements will have direct bearings
on its growth. The Budget missed out on giving any additional income tax benefit
to first-time home buyers, increasing tax savings on housing loans and raising the
house rent deduction limits, a long time desire for middle-class home buyers.
Taxing
the wealthy
On the other hand, the government has proposed to
tax for those getting rental income above Rs 50,000 per month. Tenants can
henceforth deduct 5% TDS from the rent they pay and deposit it in owners’ tax
account. The proposal will benefit the government to unearth more unaccounted
rental incomes as home owners will be compelled to show the rent received as
income in their corresponding IT return. However, the proposal may increase the
rentals across cities as owners may pass on their TDS loss to occupants by jacking
up the rent, a big negative for rental real estate.
No
second home please!
To curb wealthy investing multiple homes and getting
away with interest subsidies and tax benefits, the government has proposed to cap
the benefits for second home buyers. Tax benefit on loan repayment of second home
will be extended up to Rs 2 lakh per annum only. The move will not only discourage
second time home buyers but also impact tax-planning of existing investors. The
clause in the Finance Bill 2017 proposes that both the interest as well as the
rental income will be taxable, hence increasing the financial burden of the owners.
Low
interest rate may trigger housing demand
With demonetisation bringing more liquidity to
banking sector, the lending rate is expected to go down further in the coming
months if other metrics remain stable. This will trigger demand on various
housing categories. Though the government has reduced the interest rates up to
4% for neo middle income group home
buyers for low budget homes, unless the overall lending rate comes down
further, demand for new homes will not see a significant rise in the near
future.
Overall, the Budget proposals for 2017-18 can be
seen as a positive move to revitalize real estate sector and bring new hope to
buyers to have their own home this year. With rural housing and infrastructure
and low income groups getting prominence, the government has surely set its
sight on making homes affordable for everyone by 2020.
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