Budget 2016 and its Ripple Effect on Real Estate

Perceived to be a green shoot for the sluggish property market, the Union Budget 2016-17 promises tax relief for first home buyers and incentives on development of affordable housing projects. The government has taken forward steps to amplify housing sector for making ‘Housing for All by 2022’ a reality. Though the budget did not offer any financial protection from project delays to home buyers, the industry analysts examine it as a source of some relief to the sector.

 

Some of the key highlights:-

∙  A deduction for additional interest of Rs.50000 per annum for loans up to Rs. 35 lakh for first home buyers, provided the value of the house does not exceed Rs. 50 lakh. This would positively increase the demand from first-time home buyers who constitute around 40-50% of the demand.

∙       Waiving off Service Tax for houses built under 60 square metres.

∙       100 percent deduction for profit on development of affordable housing, however, Minimum Alternate Tax is to be applied on these undertakings.

∙       Excise duty exemption on Ready Mix Concrete (RMC) will lower the cost of housing construction, and this can encourage builders to pass on the benefits to home buyers.

∙       An exemption of Real Estate Investment Trusts (REIT) and Infrastructure Investment Trusts (InvIT) from Dividend Distribution Tax (DDT). This would enable developers to raise funds, as this makes investments attractive for investors. This clarity could lead to some exchange-traded REITs in the coming financial years.

    At the same time, an in-depth analysis manifests that the proposals do not reverberate much on real estate and housing as have benefited infrastructure. The long pending demands like single window clearance and providing ‘industry and infrastructure’ status to the realty sector were put aside, which would otherwise have helped in availing low cost funding through banks and other financial institutions.

However, the financial statement is expected to metamorphose the country’s real estate ecosystem from its current dormant state to an active sector. The budget envisages to impact multiple businesses, thereby, boosting the overall economic growth of the nation. Moreover, some of the promising proposals along with the recent passage of Real Estate Regulatory Bill could make the sector more transparent and organised.