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What Does Real Estate Expect From Modi Govt’s Interim Budget?

March 4, 2019 Comments (0) Views: 24 Real Estate, Real Estate Market, Real Estate News, Real Estate Trends

What Does Real Estate Expect From Modi Govt’s Interim Budget?

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On February 1, 2019, the Modi Government passed the Interim Budget. The step was taken by the government just three months before the new government would present a full-fledged budget in July. Well, it is quite clear that the Interim Budget has been announced to fetch some Vote on Account but the constant discussion over the Budget and criticism from the opposition cannot be ignored.

Well, let’s not get too excited by the Budget, however, if not much the real estate sector could be a little optimistic if the certainly expected turn of events took place.

Single-window clearance, industry status and hiked tax exemptions limits, which will miraculously revive demand for properties, are certain things that the industry expects from the Modi Government. Well, if the industry thinks rationally about it, the expectations must not be much from this interim budget that is announced shortly before general elections.

What home buyers expect from this Interim Budget?

Interim Budget

In order to make homes more affordable for buyers and reduce costs for developers, the government should offer tax benefits like:

  1. Reduction in income tax slabs and/or
  2. Higher relief on house loans
  3. Increase in the deduction limit under Section 80C from the current Rs 1.5 lakhs a year.

For people who want to invest in housing units this fiscal year, it will be a great present from the government if it brings in some deductions in the income tax. Units that fall under the classification of inexpensive housing where affordability remains a constraint could be benefitted from tax deductions.

Aditya Kedia, managing director of Transcon Developers says that “the real estate industry might benefit from any decline in the overall tax outgo, due to a relaxation in income tax slabs, thus, boosting the capability of the salaried class to invest in properties,”

The exemption limit (under section 80C) was raised in 2014 after a long interval of a decade. This is therefore expected that exemptions could be reduced in this budget. If Modi government wants to come in power yet again in 2019, it would act as an assured crowd-pleaser and would help increase the vote bank.

What developers want?

Most of the developers are expecting that the slump from the real industry could fly off this year with various new policies by the government. Since the last quarter of 2018 has been reported as reasonably better and developers believe that the real estate sector would possibly revive from the slump.

Well, this is possible if only the government supports the industry in ways like:

  • Easy finance for developers and buyers
  • Lucrative tax slabs for home buyers
  • New policies to boost the real estate sector
  • The process of making the real estate industry than just being a sector

Therefore developers are looking forward to an Interim budget that could help everyone associated with the real estate sector be it a buyer or a seller.

Let us discuss the expectations from Budget in detail:

Interim Budget

Benefit the Middle-Class buyers: Well, the only way to help the middle-class buyers is to revise their taxing slabs. It should be revised upwards from Rs 2.5 lakh per annum to Rs 6 lakh per annum to match taxing Middle Income Group (MIG) and higher income households.

“To achieve the government’s vision of housing for all by 2022, the government has to incentivize real estate developers by lowering the tax burden on end buyers.”

Revise loan limits under Pradhan Mantri Awaas Yojna: The government needs to revise the loan eligibility for interest subsidy up till Rs 9 lakhs from Rs 6 lakhs. In Tier I cities where affordable housing is a challenge and per square feet price is Rs 2,000, it is difficult to get a fully fledged house in the amount that middle-income group can afford.

Reviewing GST rates: GST, as we all know, is 12% on real estate sector and along with stamp duty of 6%, the tax incidence has increased by 6.5% which is a huge rise after GST has been applied. The total tax is therefore 18% which is too high for buying an already expensive house. Even though the input credit mechanism eventually benefits the buyers by ensuring anti-profiteering, but overall low demand for under construction properties is creating a slump.

In fact, after the implementation of RERA Act, the real estate developers have to complete the projects under the given time and transfer the property to the buyer. Upon that high taxation dents the overall demand from end user thereby increasing the unsold inventory and affecting the overall economy of the country.

Reviewing provisions under Section 80-IBA: In the last budget, the last built up area was changed from 30 square meters in the cities to carpet area. This is the area decided by rehab units for tenants and PAP. Realistically, the decided area is denting the actual demand as buyers are not ready to buy a house for this area to live in the city. Therefore, it should be revised higher by at least 10 percent to increase the actual demand.

Refinancing of NBFCs: The government can take yet another major step in this budget which is to increase the finance limits by Non-Banking Financial Companies. Most of the developers get finances from these companies and the numbers of developers depending upon them for finance is only increasing. The government must revive the sector, by pumping in more money into NBFCs who lend to developers.

From the above suggestions and expectations, real estate is showing its optimism towards the next budget but the feasibility of the fact still remains a matter of question. This pre-election budget is expected to be filled be surprises and government might look forward to pleasing the suppressed section for its vote bank, hence, the prospects for the real estate sector remains half and half.

We hope that the real estate sector is not left just with some promises and unreal policies that the new government might have to deal with in the next budget.

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