Budget 2017 aims to boost affordable housing plan

Arun Jaitley proposes to assign infrastructure status to affordable housing, along with a slew of budget measures to facilitate higher investments in the sector


The BSE Realty Index rose 4.2% while the benchmark Sensex rose 1.02% following Arun Jaitley’s budget speech. Photo: Aniruddha Chowdhury/Mint
The BSE Realty Index rose 4.2% while the benchmark Sensex rose 1.02% following Arun Jaitley’s budget speech. Photo: Aniruddha Chowdhury/Mint

Bengaluru/Mumbai: With a clear focus on affordable housing and homebuyers, the Union budget on Wednesday proposed to assign infrastructure status to affordable housing projects and facilitate higher investments, in line with the government’s aim to provide housing for all by 2022.

Finance minister Arun Jaitley proposed various measures and improvements to make affordable housing more wide-reaching and providing developers better credit facilities.

The National Housing Bank will refinance individual housing loans worth Rs20,000 crore in 2017-18, the finance minister said, adding that banks have already started lending at lower rates including those for housing along with interest subvention for housing loans that has also been recently announced by Prime Minister Narendra Modi.

In the last budget, houses of up to 30 sq. m. and 60 sq. m. in built-up area, in the top four cities and the other cities, respectively, were allowed 100% tax deduction on profits. On Wednesday, Jaitley changed this to the carpet-area basis, bringing more projects under its ambit.

Also, in order to be eligible, the project was to be completed within three years of commencement. Jaitley extended this to five years.

“Infrastructure status to affordable housing comes as a landmark announcement for the consumers and the real estate industry. 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,” said Brotin Banerjee, managing director and chief executive officer of Tata Housing Development Co. Ltd, which is currently developing around 40 million sq. ft of affordable housing.

“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, catalyzing housing supply and reducing the supply gap,” he said.

The allocation under the Pradhan Mantri Aawas Yojana-Gramin was also increased to Rs23,000 crore from last year’s Rs15,000 crore.

The larger objective continues to be to boost the supply of rural housing and augmenting affordable housing in urban areas. Jaitley proposed to complete 10 million houses for the homeless and those who live in kachha houses by 2019.

“...Since it (affordable housing) will be treated as priority sector, banks will also lend more and increase their portfolio towards affordable housing. That should augur well for the customers as well,” said Sriram S. Mahadevan, business head at Mahindra Lifespace Developers Ltd, which has affordable housing projects under the brand “Happinest”.

At present, houses which are unoccupied after getting a completion certificate are subject to tax at a notional rental income.

“For builders for whom constructed buildings are stock-in-trade, I propose to apply this rule after the end of the year completion certificate is received so that they get some breathing time to liquidate their inventory,” said Jaitley.

The holding period for land and buildings has also been reduced to two years from three years.

For joint development agreements (JDAs) signed for development of property, the liability to pay capital gains tax will arise in the year the project is completed.

“...The deferment of capital gains tax on JDAs would help reduce the cost of land for the developers. Also, reducing the long-term capital gains holding duration from three years to two years will help bring transparency in real estate transactions in the secondary market,” said Rajeev Bairathi, executive director and head of capital markets at Knight Frank India.

Stocks of real estate companies jumped. DLF Ltd rose 6.74%, Godrej Properties Ltd 5.13%, Housing Development and Infrastructure Ltd 5.84%, Oberoi Realty Ltd 6.38% and Indiabulls Real Estate Ltd 2.7%. The BSE Realty index gained 4.8% while the benchmark Sensex rose 1.76%.

In another move, farmers in Andhra Pradesh who surrendered their land to the government for its forthcoming capital city Amaravati will not have to pay capital gains tax on the land sale proceeds. Those who held land on 2 June 2014—when the state was bifurcated to carve out Telangana, India’s youngest state—and sold it to the government will benefit from the tax waiver, said the finance minister.
“Capital gains tax to be exempted, for persons holding land from which land was pooled for creation of state capital of Andhra Pradesh,” said Jaitley. The tax benefit depends on the value of the land given up by the farmer.

Sharan Poovanna in Bengaluru contributed to this story.

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