Bangalore: Real estate got a shot in the arm from finance minister P. Chidambaram in the budget for the next financial year, but it was mostly limited to affordable housing.
He proposed a Rs.2.5 lakh deduction on the total taxable income on home loans less than Rs.25 lakh. The deduction is applicable on loans from banks and non-banking financial companies (NBFCs).
Currently, the deduction on interest payment of home loans is Rs.1 lakh, irrespective of the amount. With this proposal, a Rs.25 lakh home loan will get a total tax deduction of Rs.2.5 lakh on interest payments.
Property analysts tracking the real estate sector said that this would offer a welcome impetus to budget housing, first-time home buyers and to some extent, boost demand in smaller cities and the distant suburbs in metros.
“With current interest rates hovering around 10% for home loans, the entire year’s interest (at current rates) will be eligible for deduction within the extended limit of Rs.2.5 lakh,” said Neeraj Bansal, director of real estate at consulting firm KPMG India. “This is likely to bring a dual impact—impetus to the growth of affordable housing segment and increase in employment opportunities in the construction sector.”
While the budget was tepid for the rest of the real estate sector, the additional interest benefit of Rs.1 lakh on first-time home loans was a positive sign, said Anuj Puri, chairman and country head at property advisory Jones Lang LaSalle India.
“However, this provision is only for the first year and with a carry-forward benefit of the unutilized deduction to the second year. This will help boost housing sales in tier II and III cities and peripheral areas and distant suburbs of metros, but not within the metros, where housing is more targeted towards the mid- and upper-income segments,” said Puri.
The government will launch a fund for urban housing with an allocation of Rs.2,000 crore in 2013-14 to mitigate the acute housing shortage in the country, Chidambaram said in the budget. The National Housing Bank (NHB) will be asked to set up the fund.
According to the estimates of the Task Force on Housing Requirements in Urban Areas during the Twelfth Five Year Plan Period (2012-17), the housing requirement in urban areas is 18.7 million units, of which 18.5 million are for the economic weaker section and low-income housing (EWS/LIG) segment, according to the Economic Survey for 2012-13 that was unveiled on Wednesday.
The existing rural housing fund that extends assistance to thousands of rural home owners will be allocated Rs.6,000 crore in 2013-14, 50% more than last year, the minister said.
Some incentives had been expected in the form of easier financing norms or tax deduction benefits but these have made selectively, said Kekoo Colah, chief executive, Shapoorji Pallonji Real Estate.
The finance minister has also proposed to reduce the abatement in service tax from 75% to 70% for homes that cost Rs.1 crore or above, or are 2,000 sq. ft or more in size. This translates into an increase in service tax outflow, which means that luxury housing will become more expensive.
However, the exemption in the case of low-cost apartments and single-home dwellings will continue.
Tax deducted at source (TDS) of 1% to be charged on the transfer of immovable property is aimed at curbing speculation and improving reporting and accountability in high-value transactions.
“Considering that the TDS is to be charged on the gross transaction value rather than net gains, sellers will have a cash-flow impact in situations where the sales are at a loss or at zero/negligible gains,” Puri said.
Boman Irani, chairman and managing director of Rustomjee Group, said the two disappointments for the sector in the budget are that the real estate regulator, aimed at ensuring transparency, wasn’t announced and the sector hasn’t been given infrastructure status.
In the last one year, the Realty Index of the BSE has gained 4.23% to 2016.18 points while the benchmark Sensex has risen 6.38% to 18861.54 points.
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