Budget is the most crucial financial activity that sets the tone for India’s economy for that particular financial year. In the Union budget 2017 that was announced on 1st February several measures were proposed to strengthen the real estate sector. As the real estate sector contributes 5-6% in the country’s GDP, it is necessary to pay attention to the health of this market segment. Here’s a flashback of the real estate-related announcements that were covered during the budget.
- One of the iconic announcements during the budget was, giving infrastructure status to affordable housing. By giving the infrastructure status, the Government will allow companies to access funds with a lower rate of interest that significantly reduces the prices of houses. Also, the approval process for affordable housing will be simplified, thus, increasing transparency in this sector. This is a welcome move for the builders, as they will be dealing with lower interest rates!
- The holding period for capital gain tax (long term), has been reduced to 2 years from the current time frame of 3 years. This will definitely help to reduce the tax burden of the seller and promote investment in the real estate sector. This also ensures that more than the seller will enjoy more than 10% savings on selling of the property, after 2 years of purchase.
- Another iconic announcement made during the Union budget 2017, was to exempt developers from paying income tax for a period of 1 year, for the unsold property, after receiving the completion certificate. This is a big relief for builders.
- Instead of considering the built up area of 30 sq. mt and 60 sq. mt, in the case of affordable housing, the carpet area of 30 sq. mt and 60 sq. mt will be taken into consideration. In the case of the four major metropolitan cities, 30 sq. mt limits are applied only if they come under the municipal limits. For the rest of country, the limitation of 60 sq. mt will be applicable.
- The project deadlines have been extended to 5 years from the existing period of 3 years. This extended period of 2 years will ensure that the builder has enough time to sell all units of a property.
- Due to a surplus of liquidity created by demonetization, banks have already started reducing their lending rates for housing loans. Also, during the Budget presentation, it was announced that the National Housing Bank (NHB) will refinance individual housing loans of about 20,000 crores for the financial year 2017-18.
Before demonetization and Budget announcement, the property buyers were skeptical in raising funds for buying or selling properties. However, after demonetization, the banks have reduced interest rates for housing loans. In addition to the reduction in lending rates, the announcement of giving interest subvention of 3% (Loans up to 12 lakhs) and 4% (Loans up to 9 lakhs), is expected to boost property purchases.
Due to the Union budget 2017-18, the builders (both big and small) can now approach banks and NBFCs for a fair price deal, so that the end-users can buy their dream house at a reasonable amount. Also, property buyers will now have to pay the registration fee, as pre-decided by the Government. Due to the fallen economic growth rate in previous years, builders have had a tough time in raising financial funds. However, the situation has improved post demonetization, and the banks now, are willing to give funds at a lower rate of interest.
In short, this budget has started a whole new era for the real estate sector. By reducing holding period of capital gains to two years, the property sellers have to shell out less money to pay taxes, which in turn will boost investment in real estate sector. Due to the infrastructure status is given to affordable housing, the builders can enjoy subsidies given by the government that will eventually result in more project launches. As there is a significant cut down in lending rates, many people will now choose to apply for home loan, instead of paying rent. As result of these improvements in the real estate sector, it is expected that the economic growth rate of this sector, will be positive; and will set new milestones for the real estate sector.