Rooting for affordable

Geetu vaid

The severe blow of demonetisation dealt to the real estate sector and pressures of the “poll season” had raised hopes that the Finance Minister will go an extra mile to placate the “sore” stakeholders with Budget-2017. But it was not to be so. Steering clear of the populist sops, the FM kept the focus sternly on affordability and Housing for All thereby bringing the hitherto neglected segment of small and affordable housing in limelight. 

The announcements made by the FM on February 1 involving the realty sector hint at a long-term vision for a strong, transparent and people-friendly real estate sector. The end users surely have an upper hand and their position is going to be strengthened more once RERA is implemented.   

By giving infrastructure status to affordable housing the FM sent across a clear message to the private builders to climb down from their “high priced” ivory towers and build for the masses. Industry status for the sector as well as single-window clearance have been the long-pending demands of the sector, but it was the affordable housing segment that has been accorded this status. Thus, developers going in for affordable projects will have access to funding easily and by tweaking the area norms for affordable units and extending the deadline for completing these projects from three to five years the FM has made affordable more attractive and lucrative even for big builders.

The one-year tax break for unsold inventory that has received the completion certificate has also given developers reason to cheer. A record outlay of almost Rs 4 lakh crore in the infrastructure sector, massive increase in allocation for Pradhan mantra Awaas Yojana (PMAY) for rural areas; target of 1 crore houses to be completed by 2019, increasing Credit-linked Subsidy Scheme of PMAY from 15 years to 20 years are all going to give a boost to affordable housing segment.  

Though the Budget has been received positively by the industry mavens, there are certain pain points that can’t be ignored in the din of euphoria. Easing of approvals and faster clearances, the issue of land prices, rationalising circle rates have remained unaddressed so far. 

And while the governmen t’s focus remains on homes in the price bracket of Rs 20 to Rs 40 lakh, those looking for mid-segment homes and those investing in second homes for tax rebate and future price appreciation are not going to have much to cheer about. 

The budget fine print indicates the biggest tax arbitrage via setting off loss from second home has been taken away now. This is not a positive move for individual buyers. Earlier one could buy a second home by taking a loan and show a loss via differential between interest paid on mortgage minus rent received from the property. The loss could be adjusted against income from salary or other income. Now the adjustment has been restricted to Rs 2 lakh only, which is negligible for individuals with high income. This is going to make investing in second home unattractive and will suck out investors as well as the salaried class who used to invest in a second property to save tax. 

The lame change in the individual tax rates is also not going to  give a boost to home sales. 

Thus, the chances of the residential real estate receiving an immediate boost are slim for the developers and the homebuyers, too, will have to wait for some more time to reap the benefits of price rationalisation. 

voices

"The industry wholeheartedly congratulates the Finance Minister for presenting a growth oriented budget, thereby setting the tone and direction for investments in the country. Providing infrastructure status to affordable housing is a significant step and the move will lower the cost of funds for developers, benefits of which will ultimately be enjoyed by the end users. Considering that real estate is the single largest employment generator after the agriculture sector, perhaps, government should have provided infrastructure status to the entire sector. Nevertheless, this is a step in right direction."  — Rohtas Goel, Chairman and Managing Director, Omaxe Ltd

"One of the best thing to happen to real estate sector is the industry status being given to affordable housing. This will help in increasing liquidity as banks will be more keen to extend loan to the developers for affordable housing. To promote affordable housing, the Finance Minister said that the scheme for profit linked income tax exemption for promoters of affordable housing will be broad based.  Instead of built-up area of 30 and 60 sq. mtrs., the carpet area of 30 and 60 sq. mtr. will be counted. Also the 30 sq. mtr. will apply only in case of municipal limits of four metropolitan cities while for the rest of the country limit of 60 sq. mtr. will apply.  Another practical aspect and respite to the developers is that the houses to be built under affordable housing can now be completed in five years after the commencement of work as against the three year period earlier." — Deepak Kapoor, President, CREDAI Western UP

"Union Budget 2017-18 was likely to give some respite to the realty sector and it was highly expected that this sector might get industry status this year, but this has not happened. However, the FM has still taken an appreciable step in giving infrastructure status to affordable housing and increasing the scope of the same. The decision of increasing the period of completion for affordable housing projects from 3 to 5 years is also a welcome move. Reduction in interest rates for home loans is already in place, relaxation in the individual tax limit would also encourage the home buyers to come forward." — Ashwani Prakash, Executive Director, Paramount Group

"This Budget will benefit the real estate industry immensely. With affordable housing finally getting infrastructure status, developers of budget housing will get access to large amount to cheap capital and the government can pursue the target of Housing for All by 2022 more vigorously.  The announcement under the Taxation of Capital Gains of Joint Development Agreement which now makes landowners entering joint agreements for development of properties liable to pay capital gains tax upon completion of projects will help avoid litigation by removing any scope for ambiguity." — Tejinder Pal Setia, Chairman, Mona Townships Private Limited

"Affordable Housing has secured the long-awaited Infrastructure Industry status. This is a big gain for our industry and will result in the attendant benefits of securing longer-term and cheaper funding; a much required boost.  The change in the capital gains tax incidence from the beginning to the end of a project with respect to Joint Development Agreements will also prove an important impetus to such projects by reducing the cost of land to the developer."  — Ravi Ramu, CEO & MD, VBHC

"We welcome the conferment of infrastructure status to affordable housing, which can improve resource allocation to the sector, thereby reducing cost of capital for developers.  Moreover, the changes under Section 80 IB with respect to size of units (built up area to carpet area), timeframes for project completion (3 years to 5 years) and geography (upto 60 Esq. beyond the 4 metros) will encourage greater participation by organised developers in the affordable housing segment, thereby catalyzing development and reducing the supply gap."  — Anita Arjundas, Ceo, Managing Director & Ceo - Mahindra Lifespace Developers ltd

"Affordable housing getting the infrastructure status was one of the much needed changes for the Indian real estate sector and will result in increased participation from private players by paving ways for cheaper loans and significantly boost the government’s target of Housing for All.  It will positively impact the real estate sector, from the perspective of middle-class end-consumers. The criteria for affordable housing has been changed from built-up area to carpet area will make the segment more transparent for both the builders and the buyers. Also 1 year tax exemption from notional rental income from unsold inventory and reduction of long term capital gains tax period from 3 to 2 years will provide respite to investors."  — Rattan Hawelia, Founder & Chairman, Hawelia Group

"The definition of affordable housing has been changed to make it more practical to build and market. Now, we can expect focus on building more affordable housing projects. R rural housing will also get a big push. The borrowing costs for the homebuyers have already come down significantly. All these factors will be considerably significant in helping to expedite the decision of those who have been deferring their decision to buy homes. This will make investment in the real estate sector lucrative providing a surge in consumption demand. Having said that 2017 will be the year of affordable housing."  — Pankaj Bansal,Director, M3M Group

"Getting Industry status has been a long standing demand of the real estate sector. As a result developers can access foreign funds at a cheaper cost by way of debt and with industry status, banks will be willing to lend more to projects. Also, with reduction in income tax slabs, and reducing interest rates the purchasing power of home buyers is bound to increase. Increased and efficient spending towards infrastructure is welcomed by the sector." — Prateek Mittal, Chairman of Real Estate & Infrastructure ASSOCHAM

"Unfortunately, the steps taken will not be enough to kick start the real estate sector which is one of the engines of the economy. The announcement of according infrastructure status to affordable housing projects will truly only see a big impact if these lower cost funds are actually made available for acquisition of land. Without this, a large part of the funds required for the affordable segment for the construction are provided by the end consumer and large scale capital is not required once the land acquisition is completed and approvals are in place. I wish, however, that more steps had been announced to curb the regeneration of black money.  Now that the cash has come into the banks, it is critical that the process of regeneration is addressed.  Without this, it is a matter of time before the cash economy flourishes again." — Rohit Gera, Managing Director, Gera Developments & VP, CREDAI

"The moves including the reduction in the tenure of long-term capital gain tax from 3 years to 2 years, rationalization of capital gains JDA agreement, infrastructure status to the affordable housing segment and most importantly the SOPS inter-alia, the increase of the size of the affordable housing unit and enhancing the universe for the 60sqm stipulation in the segment, are all positive steps for the real estate sector and will definitely help in giving the much needed push to the affordable housing segment."  Venkatesh Gopalakrishnan,President - Business Development & Chief Investment Officer - Shapoorji Paloonji Real Estate.

"One of the most profound effects on real estate that we saw in this Budget relates to Section 23 of the Income Tax Act. Individuals holding house property which is vacant throughout the year shall be subjected to tax on the properties’ deemed rental value. However all builders & developers shall enjoy a year-long relief, who hold properties as stock in trade as there would be no tax on deemed rental value for a period of one year from the end of the year in which the occupation certificate was granted. While I expect an inundation of properties in the residential market thereby crashing rentals down further, this move indeed provides much needed respite, albeit for a year, for the already stressed Real Estate industry." — Manoj Nair, CEO & Founder, RedGirraffe.com for your perusal

"Focus of the Budget is on infrastructure development including airports and roads, this will help in healthy growth of real estate sector also. Announcements like new FDI policy under consideration and tax relief on unsold stock as liability to pay capital gains will arise only in the year a project is completed will give boost to the sector." — Prashant Tiwari, Chairman, Prateek Group

"The Government's decision to grant infrastructure status to affordable housing will boost cement, steel, construction industries as well as employment and surge launches of new real estate products across the country. However, for implementing its decision, the Government requires to formulate a policy for social housing and setting out models on how land at low cost can be provided to developers for constructing affordable housing. It is essential to reach out to all segments of society and not restrict the benefits to low income or economically weaker sections. A fast-tracked approval process for housing projects, clarity on the definition of 'affordable housing' for metros as well as Tier II and III cities across the country, access to cheaper funding to homebuyers, higher tax exemptions on housing loans without restrictions regarding the size of the apartment, or the size of the loan will also boost the real estate sector." — Ashoo Gupta, Partner, Shardul Amarchand Mangaldas & Co.

"The Government's path-breaking provision in this Budget is the additional refinance of individual loans worth of Rs. 20000 crore through NHB, which will definitely prove to be a shot in the arm for the real estate sector.. In a nutshell, it's a win-win budget for both homebuyers as well as the real estate developers." — Arjunpreet Singh Sahni, Executive Director, Solitairian Group