The union budget appears promising .The Union Budget 2017 promises to boost economic reforms, control inflation and prudent fiscal management. Finance Minister Arun Jaitley has given much needed thrust to the real estate sector in his budget 2017-18. The minister announced that the ‘Affordable Housing’ will be given ‘Infrastructure’ status, which is likely to result in increased participation from private players.
Here are some Budget proposals that are likely to influence the realty sector going ahead:
1. Infrastructure status to Affordable Housing: The step promotes government agenda of ‘Housing for All by 2022’. This will allow easier access to capital for developers, at a much lower rate with a longer amortization period. In addition, it allows developers access to viability gap funding and tax incentives.
a. For affordable housing purpose carpet area will be counted instead of built up area. The 30 sqm limit is to be applied only in case of municipal limits of 4 metropolitan cities while limit of 60 sqm will apply for the rest of the country including the peripheral areas of metros.
b. the time of completion of such projects has been extended by the government from 3 years to 5 years. Buyers of affordable housing got a boost with the announcement of interest subvention of 4% and 3% on loans up to INR0.9 million (USD13, 318) and INR1.2 million (USD17, 758), respectively. Thus, “more projects will now be eligible for profit-linked income tax exemptions.
2. 10 million homes to be built by 2019 for the homeless and those living in kutcha houses: Impact: INR230 billion has been allocated under the Gramin Pradhan Mantri Awas Yojana to stimulate the rural housing sector in India.
3. Tax breather for notional rent income on unsold unoccupied completed projects: The houses that are unoccupied after getting completion certificates are subject to tax on notional rental income. Builders for who constructed buildings are stock-in-trade; rule can be applied after one year of receiving the completion certificate. Due to the law, developers will get some time to liquidate their inventory.
4. Holding period for immovable assets reduced from 3 years to 2 years and indexation to be shifted from 1.4.1981 to 1.4.2001: Reduction of a year in the holding period and amendment in the base year indexation will provide tax relief to asset holders due to reduction in capital gains tax .It is likely to increase the government’s tax base through immovable property and encourage the mobility of capital assets. With the proposed taxation provisions, sale of real estate will get a boost.
5. National Housing Bank (NHB) will refinance individual housing loans of about INR200 billion in 2017-18: The demonetization has resulted in surplus cash within the banks leading to lowering lending rates by banks across country. Cut in lending rates will benefit new homebuyers and those who have already taken a flexible housing loan.
6. Increase in investment in infrastructure and development projects: Railway sector has been allocated about INR1310 billion (USD19.4) billion) and INR64.9 billion (USD0.9 billion) for highways which includes 2,000 kms of coastal roads, facilitating improved connectivity between major port cities such as Mumbai, Chennai, Kochi .Similarly, “select airports in Tier-II cities will see investment for operation and maintenance through the public-private partnership (PPP) model. Another positive step is the decision to introduce a bill to resolve disputes in PPP projects.
7. Capital gains tax liability changed for Joint Development Agreement (JDA) signed for development of property: The impact of this decision is that the capital gains tax will only be paid in the year of completion of the project. Apart from several other measures to reduce capital gains tax, this step will provide tax relief to the landowner and the builder/promoter, thereby decreasing their liability.
8) No cash transaction above INR0.3 million (USD4439) permitted: Any cash transaction above INR0.3 million (USD4439) is disallowed by the govt. Thus, “in our opinion, this provision may only lead to a nominal impact on the sector in the short term, while it will lay down the foundation for a transparent economy and boost foreign investment,” said Oberoi.
9. Abolition of Foreign Investment Promotion Board (FIPB): As more than 90% of the total FDI inflows currently take place through an automatic route, the government has decided to do away with the FIPB in 2017-18. This will liberalize FDI norms and attract foreign investors. Under the automatic route for FDI, an approval is not required from the FIPB by the foreign investors.