FM’s booster dose for real estate

If you are planning to invest in a property, maybe this is the right time. Interim finance minister Piyush Goyal made it clear during his Budget speech on Friday when he announced a slew of proposals for the real estate sector.

Experts feel the government’s proposals would mainly boost the affordable housing segment ahead of the upcoming general elections. “People earning up to Rs 5 lakh will get a full tax rebate. However, if one invests in specified government saving schemes, then the tax exemption could go up to Rs 6.5 lakh. This can have good implications for affordable housing but not really on mid-income housing,” said Anuj Puri, chairman, ANAROCK Property Consultants. “There was no major tax relief to the real middle class.”

Ankur Dhawan, chief investment officer at online property portal PropTiger.com, also feels that the impact will be much stronger for the affordable housing buyers. “Not only [the] government is giving credit linked subsidy scheme for these buyers, but also leaving more money in hand to pay EMIs (equated monthly instalments) through increased tax savings.”

While presenting the Interim Budget, Goyal pointed out that to give impetus to the real estate sector, the government proposed to extend the period of exemption from levy of tax on notional rent on unsold inventories from one year to two years. Goyal was appointed interim finance minister a week ahead of the Budget presentation on February 1.

Anshuman Magazine, chairman and CEO, India, South East Asia, Middle East, and Africa, CBRE—a commercial real estate services and investment firm—said, “Exemption on 100% profits for developers of affordable housing projects has been extended by one year, covering projects approved up to March 31, 2020. An extension of the tax holiday for developers on unsold inventory has also been provided. These are important measures for the recovery and further expansion of residential real estate in the country.”

“The changes to the capital gains from the sale of house property, being allowed to be invested in two properties instead of one and the 10-year window for registration of affordable housing projects for getting tax relief will provide a boost to the real estate sector and consequently to construction activity. We expect good tailwinds to the India growth story from these announcements in the Budget,” said Ranen Banerjee, partner, PwC India.

Real estate consultants point out that there has been a slump in the residential real estate markets over the past two years, as large cities such as Delhi and Mumbai have been struggling with a huge number of unsold units. Skyrocketing prices and the pile-up of unsold inventory have made buyers wary.

“After the negative impact on the real estate sector last year, this year brings some cheer to the real estate developers. The notional rent-free period on ready inventory has been increased to two years. Capital gains on the sale of the first property can be offset against two properties now. Tax break for developers of affordable housing has been extended by one more year. We would see the automotive, fast-moving consumer goods (FMCG), and housing finance industries benefitting as a result of the proposals in the Interim Budget,” said Mihir Vora, director and chief investment officer, Max Life Insurance.

The TDS (tax deducted at source) threshold for deduction of tax on house rent has been increased to Rs 2.4 lakh, from Rs 1.8 lakh per year. This will provide relief to small taxpayers and also push the demand for affordable housing.