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Will the Budget offer sops for realty sector?

Will the Budget offer sops for realty sector?
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First Published: Tue, Feb 23 2010. 11 41 PM IST

Updated: Tue, Feb 23 2010. 11 41 PM IST
The growth in demand and sales volumes in the realty sector seen about six months ago is now slowing. Several developers in metros have increased residential property prices by around 10-20% even as sales volumes are about 70-90% below the peak volumes. Against this backdrop and given that the beleaguered firms have just regained financial health, will Budget 2010 offer any sops for the sector?
A key priority in the wish list is extension of Section 80-IB (10) of the Income-tax (I-T) Act, which gives a tax break to companies building affordable homes. This, argue developers, would spur need-based demand in housing, improve profitability of developers and help the government achieve its mission of making the country slum-free.
The bone of contention is the specified period for availing the tax holiday, with the stipulation being that the concession applies to projects approved between 1 April 2007 and 31 March 2008, if such projects are completed before 31 March 2012. Industry sources say that they would prefer to have one instead of both these conditions. This concession will improve the profitability of a host of developers such as DLF Ltd, Unitech Ltd, HDIL Ltd, Puravankara Projects Ltd and some mid-segment firms that have launched affordable housing projects.
Besides, given that the real estate sector is at the threshold of growth, some analysts reckon that indirect measures could boost demand. For example, the Budget could raise the exemption limit on interest paid on home loans, although it’s by no means clear whether these limits actually drive demand in the premium housing categories.
However, according to Anand Rathi Research: “This move may be unlikely as the government has already spurred demand through low home loan rates.”
Another positive surprise will be an increase in the tax concession on principal repayment of home loans. But from the consumer point of view, a separate classification for the I-T purpose for home loan repayment would augur well. For now, it is clubbed with all other deductibles under Section 80c. Increasing the limit of priority sector housing loans will also raise demand in the smaller cities.
Meanwhile, profits of realty companies could be dented by a rise in input costs, which seems inevitable. Prices of cement and steel, two key raw materials used for building and construction, are rising. An excise duty roll-back in cement is also expected in the Budget, which could impact investor sentiment towards real estate firms at least temporarily?until?demand?takes?off.
Analysts reckon that any increase in allocation of funds to mid-segment housing schemes such as the Rajiv Gandhi Awas Yojana could have a positive impact on companies such as HDIL, DB Realty Ltd and Unitech.
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First Published: Tue, Feb 23 2010. 11 41 PM IST