Monday, 23 February 2015

Great expectations from the Budget

The Government should enhance the income tax exemption limit and give home loan incentives to help drive demand in the residential realty space.

As we move closer to the Union Budget 2015–16, India’s real estate sector is hoping for key announcements to help revive the housing market. With the existing housing shortage in India, demand is not really the key issue as much as affordability for the average citizen. What the Government can do to encourage homebuyers is announce tax rebates on housing purchases and mortgages. Income tax exemption limits and home loan incentives would also help to drive demand in India’s residential real estate.

We are still awaiting the ordinance with the latest amendments to the Land Acquisition Act, 2013, to be finally passed in Parliament. One hopes that the new Act will be implemented soon, together with more incentives for the low cost/affordable housing segment. With the Reserve Bank of India already having announced in July 2014 that lending to the affordable housing segment be made eligible under the priority sector lending category, similar announcements for other housing segments would also be a welcome move.

The real estate sector expects a push for affordable housing at a massive scale across the country from the upcoming Budget announcements. Among other factors, incentivising the developer community by offering subsidised land and partial ownership of the project, as well as incentivising the end-user by providing attractive tax breaks will be desirable.

According to the previous Budget, low cost affordable housing projects for the urban poor were exempted from Foreign Direct Investment (FDI) restrictions, and the Government had allocated ` 4,000 crore through the National Housing Board (NHB) for providing cheaper loans for low cost housing to support the Housing for All by 2022 scheme. Additionally, ` 8,000 crore had been allocated for the rural housing scheme under NHB.

With substantial funds already allocated for affordable and/or low-cost mass housing schemes from previous fiscals left unused, the effective utilisation of fund allocation for affordable housing cannot be stressed enough.

A relaxation in FDI norms in the housing sector, moreover, included a reduction in the minimum capitalisation from US$10 million to US$5 million for wholly-owned subsidiaries; and trimming the minimum area of construction projects from a carpet area of 50,000 sq m to 20,000 sq m. Such relaxation in entry norms are expected to boost the quantum of investments going into the housing sector, particularly into our tier II and III cities.

On the personal savings and tax regulations front too, the previous Budget had allowed for the home loan interest exemption limit to be hiked from `1.5 lakh to `2 lakh. Similar increases from the upcoming Budget are likely to have an impact on home-buyers waiting to take purchase decisions.

In the upcoming Budget, however, there must be more clarity on the Sardar Patel Urban Housing Mission, in terms of fund allocation, funding instruments and entities, exact timelines and project locations, among other factors.

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