How The 2017 Budget Will Impact India’s Real Estate Market &Home Buyers Like You – Harsh Modi

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The Union Budget of 2017 will provide the much-needed thrust that the Indian real estate sector has been looking for.

Given below are some of the key measures that will positively impact India’s real estate market – and you (if you’re an aspiring home buyer).

  1. Affordable Housing Gets Infrastructure Status
    The grant of infrastructure status to affordable housing– the backbone of the India’s real estate – will boost the growth of low cost housing in India. This is important because almost 95%[1] of the shortage in housing supply is in this segment.The infrastructure status will help developers of budget housing projects to:
  • take cheaper loans (say at 12% vs 18-24%)
  • launch more low cost housing projects (where most of the demand lies)
  • meet the government’s objective of Housing for All by 2022

How it will benefit the economy

  • Increase in housing activity will generate new employment opportunities
  • Construction industry will witness healthy growth
  • Tax incentives will reduce cost and improve profitability and efficiency
  • Regulatory breakthroughs such as RERA and GST will increase demand and streamline the real estate sector

What this means for you

  • Construction costs will come down
  • Tax concessions provided to developers will translate into a cost benefit for you
  • Increased flow of foreign and private capital (and debt) will boost construction activity

 

  1. 1-Year Tax Relief on Unsold Inventory
    A 1-year tax break for ready, unsold housing inventory[2]will now be payable afteran entire project has been completed – and not before (as earlier). This will ease the financial burden on land owners, developers and realtors;prevent litigations– and ultimately stimulate growth.What this means for you
  • You will have more housing options to choose from
  • New housing projects will be launched faster
  1. Change in Qualifying Area &Timeline Requirements
    To qualify for 100% tax deduction on profitsfrom affordable housing projects,developers had to complete their project within 3 years – which was impractical because approvals are time-consuming.The completion time has now been increased to 5 years, thereby allowing developers more time to sell their inventory.

The qualifying size requirements have also been revised – from built-uparea to carpet area – as follows:

  1. 30 sq. m. for projects in municipal limits in the 4 metros[3]
  2. 60 sq. m for the rest of India[4]

The increase in area (from built-up to carpet)will incentivise moredevelopers to enter the affordable housing sector.

What this means for you

  • Increase in supply of low-cost housing projects
  • Increase in size of low-cost homes by approx. 30%[5]
  1. Holding Period for Capital Gains Reduced
    The long-term capitals gains tax for immovable property (i.e. land and building) can now be availed after 2 years, instead of 3 years. Additionally, the base year for indexation has shifted forward by 20 years – from April 1, 1981 to April 1, 2001 for all asset classes including immovable property.

What this means for you

  • You can buy property and exit much faster
  • You will pay less capital gains tax

The move also provides tax relief to developers of housing projects who have faced a slowdown in sales after demonetisation.

  1. Joint Development Agreements (JDAs) Will Boost Land Transactions
    JDAs, which are the most prevalent form of land development, will get a boost after the key tax reforms announced in the 2017 Budget. This is likely to increase the supply of land into the real estate market which has been facing pressure for the last 3 years.

What this means for you

  • More housing options in the future, especially in emerging areas
  1. Focus on Improving Connectivity & Transportation Infrastructure
    The government will focus aggressively onMultiple Mode Transport System(MMTS[6]) – by holistically merging local railand bus faresto allow commuters to enjoy both facilities.Additionally, infrastructure for transportation will receive a fillip to the tune of INR 2.41 lakh crore.

You can expect to see more housing projects being launched in peripheral locationswhere land is cheaper – because as connectivity improves, travel time will reduce and no longer be such a deterrent.

What this means for homebuyers like you

  • You will be able to buy a bigger house for less, especially in peripheral areas
  • Your travel time will reduce
  1. Home Loans Will Be Cheaper & Easier to Get
    According to the finance minister, the National Housing Bank will refinance housing loans worth approx. ₹20,000 crores, and Pradhan Mantri Awas Yojana will get ₹23,000 crores in 2017-18. Moreover:

“Thanks to the surplus liquidity created by demonetisation, banks have already started reducing their lending rates, including those for housing. In addition, interest subvention for housing loans has also been announced by the Prime Minister.”  – Arun Jaitley, Finance Minister of India

What this means for you

  • Home loans will be more easily available
  • Home loans will cost you less
  • Your monthly EMIwill be more affordable
  1. Reduction in Income Tax Rate
    The reduction of income tax rate (for individuals earning up to INR 5 lakh) will increase their disposable income. This, along low cost housing incentives and interest rate reduction by banks will likely promote growth in the housing sector – especially affordable housing.
  2. Other Factors that Will Boost Real Estate Growth
    1. New FDI Policy(under consideration) will help provide access to a larger pool of funds
    2. Increase in Fund Allocation for AMRUT[7], Smart Cities and new coastal connectivity projects will create more employment opportunities – as well as boost connectivity and infrastructure

If you’re looking to buy a home in 2017, it’s a good idea to start searching nowfor ready-to-moveprojects – or projects that are nearing completion. But if you’re waiting for the effects of the 2017 Budget to take shape on ground,you may have to wait longer.

 

Harsh Modi works as Director at Eden Group, a Kolkata based real estate company. A strong supporter of the 2017 Budget and the Real Estate Regulatory Act, Harsh applauds Finance Minister Arun Jaitley’s proactive budget. He believes that with the all-important infrastructure status being given to affordable housing, the Government’s objective of providing Housing for All by 2022 looks quite achievable.

 


[2] Refers to houses that have received the completion certificate (CC) but not yet been sold

[3] The 30sq. m. (~300sq. ft.) cap will apply only to municipal limits of the 4 metropolitan cities. For rest of India, including peripheral areas of metros, a limit of 60sq. m. (~600sq. ft.) will apply. This is good news for people in Noida, Gurgaon and Ghaziabad in NCR-Delhi; Navi Mumbai, Basai, Thane and Kalyan around Mumbai; and Chandan Nagar and Howrah near Kolkata.Source: Times of India

[4] 2-bedroom flats of 800sq. ft. in most parts of India will now come under the affordable housing category, as builders generally set aside 25% of built-up area to arrive at carpet area. Source: Times of India

[6]An MMTS (Multiple Mode Transport System) ticket will allow commuters to enjoy bothlocal rail and bus services.

[7] Atal Mission for Rejuvenation and Urban Transformation

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