Breaking the historic trend of disregarding the real estate sector, Finance Minister Arun Jaitley extended several pro-housing reforms in the Union Budget 2017-18. Rendering an infrastructure status to the affordable housing segment has come as a pleasant surprise and is seen as an effective solution to the growing disparity in demand and supply of this category.
The real estate industry hails this decision as it will now instill economic viability in low-cost projects, for both buyers and developers, and lead the country a step closer towards the ‘Housing for All’ mission. Access to institutionalized funds and tax exemption on profits based on carpet area instead of built-up area encourage developers to foray into the affordable landscape, thus, augmenting the supply of housing units in the EWS and LIG categories.
Giving all due importance to rural housing, the Centre allocated a whopping rupees 23,000 crores under the Pradhan Mantri Awas Yojna (PMAY). The scheme is proposed to develop and deliver 1 crore housing units by 2019 for the homeless. Additionally, the affordable housing scheme has been extended to 5 years from 3 years, along with refinance housing loans worth rupees 20,000 crore via National Housing Bank (NHB). Coupled with these, enhanced liquidity with the banks, especially post demonetisation, is expected to auger well for homebuyers dependent on home loans. The interest rates on housing loans are already at an all-time low. Reforms undertaken in the budget session are expected to further smoothen the ongoing rates and make housing more viable for the masses.
Giving a further leg-up to the sector, the government allocated a huge corpus to the infrastructure industry, keeping significant focus on the development of rail, road and waterways. The decision to abolish the Foreign Investment Promotion Board (FIPB) and consider a new policy for Foreign Direct Investment (FDI) is anticipated to propel private equity funds into the sector. Moreover, efforts towards augmenting skilled workforce and labour, upgrading supply of power and water across the country and implementing a new Metro Rail Policy are also expected to get real estate back on track by improving sentiment.
The reforms in the capital gains tax structure such as reduction in the holding period of an immovable property from 3 to 2 years to incur long-term gains, change in year of indexation from 1981 to 2001 and calculation of tax in case of Joint Development Agreements (JDA) only in the year of project completion are progressive for the realty sector.
There were a few downsides to the budget, as well. While the Finance Minister missed announcing any benefits for first-time homebuyers, there was no mention of the formulation of a Single Window Clearance mechanism for speeding up the tedious project approval process. GST Bill and Real Estate Investment Trusts (REITs), and Infrastructure Investment Trusts (InViTs) also did not feature anywhere in Jaitley’s speech.
Nonetheless, if the announced reforms are executed successfully, the market will head towards a growth path paving way for fresh energy and sentiment revival in the sector. The broad-based framework for the financial year (FY) 2017-18 has been established, however, the state government’s efforts as well as percolation of funds to the grassroots will ensure sustainability of these steps.
Guest Author
Narasimha Jayakumar is chief business officer at 99acres.com. Prior to this he was chief operating officer and business head of ecommerce for TV18 Home Shopping Network Limited.
