Interim Budget sets the stage for revival of real estate
As anticipated, the Interim Budget did turn out to be a vote bank-facing exercise, predominantly cheering farmers and labourers. But the government kept the best for the last—a pleasing boost to the housing sector in more ways than anticipated. The provisions made will certainly boost consumer sentiment, stimulate affordable housing demand and incentivise investors hoping for rental returns.
The major positives included a full tax rebate for income up to Rs 6.5 lakh (including investment under Section 80C), which is likely to push demand for affordable homes, though not much in mid-income segment. There was an extension of Section 80IBA for an additional year; it will push affordable housing and cheer developers active in this segment.
The Budget increased the tax exemption limit for rents earned to Rs 2.4 lakh from the previous Rs 1.8 lakh limit. This will make property investment more attractive and help boost housing sales. Another positive for investors was the rollover of capital gains tax on the sale of residential property. This benefit now applies to two houses instead of the previous single one. Importantly, the Budget provided tax exemption on notional rent of a second home, which again makes property investment more attractive and also gives a fillip to the second home segment.
The period for taxing unsold inventory held by developers has been extended up to two years. As per Anarock data, this will benefit nearly 85,000 ready units that are unsold on the market, of the total 6.73 lakh units across top seven cities. The Budget put a clear onus on boosting infrastructure by allocating more funds for development of airports, railways, etc. While infrastructure deployment doubtlessly benefits real estate industry, it remains to be seen how much of it is actually implemented.
All in all, the real estate sector received its due share of consideration in this balanced Budget, despite the massive electoral pitch. To be fair, the incumbent government has certainly invested heavily into the real estate sector.
Among its achievements, the Narendra Modi government has aptly set the stage for Indian real estate to become a healthy, flourishing industry in the long-term. However, the proviso is ‘long-term’. This government has definitely tightened its grip on real estate, which was the single-largest dumping ground for black money hoarders in previous years.
It has also introduced some high-impact schemes to benefit genuine end-users of real estate. There have been major policy overhauls, amendments in Acts, a visible impetus to infrastructure development, and slightly over-ambitious visions like 100 Smart Cities and Housing for All by 2022.
The triple-policy tsunami of demonetisation, RERA and GST brought about a paradigm shift in the way real estate business is carried out in the country, resulting in vastly improved transparency and efficiency. The confidence of property buyers and investor confidence is now being restored, albeit gradually, and real estate is beginning to look more favourable as an asset class.
That said, the Centre’s aim to enforce RERA in each state is still way behind schedule. As of today, quite a few states have not notified their respective RERA rules as yet, while in others buyers are fretting over the dilution of the rules that have been notified. Also, while the real estate sector braved both GST and demonetisation and will reap the due long-term rewards, they dealt the industry a very hard blow, from which it has not fully recovered yet. In fact, the arrival of a flat 12% of GST on under-construction was not exactly an improvement for buyers.
Certainly, this government has done a lot for the real estate sector, not least of all with its latest Budget. However, the stage that has been set is for long-term growth and not short-term firework displays. Will the momentum that has been infused into the real estate sector continue long enough for a real revival to take place? All eyes are on the forthcoming general elections.
-The author is chairman, Anarock Property Consultants