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Impact of Budget 2017 on Real Estate

The Union Budget 2017 has proposed various positive measures across all sectors with the aim of strengthening and developing the country and its people and resources. The very fact that this year Union Budget was presented on February 1, i.e. one month than the usual norm of presenting in March, is a step toward nationwide reform. Keeping our focus on budget revelations and its impact on real estate, here we present some of the significant measures that will give the needed thrust to this sector. It was witnessed that the Union Budget 2017 paid heed to the need of both parties in real estate business – the realtors and people keen to buy property in India. The two impactful initiatives of Budget 2017 for the growth of real estate are industry status to low-cost housing and the easing of capital gains tax norms. Here are few developments that were introduced to the real estate sector:

 

i)    Infrastructure status to low-cost housing – By providing infrastructure status to affordable housing is one of the major developments in the realty sector. With this initiative, larger areas qualify for affordable housing thereby making more units applicable for the benefits. This will boost builders to include tier 2 and tier 3 cities under their radar of construction. The maximum housing demand is seen in the affordable housing segment and its inclusion in the current budget is a step towards the aim of Housing for All. Under the affordable housing initiative, developers will be eligible for several Government incentives, subsidies, tax benefits and institutional funding too.

ii)    Easing of capital gains tax norms –Being accommodative to the concerns of the real estate developers, the budget provides a breather by relaxing long term capital gains, joint development agreements, and tax rebates for builders, thereby helping to reduce their tax liability. With the facilitation of capital gains taxation norms, the time limit for capital gains is to be considered as a long-term gain and capital gains tax has been reduced to two years as against the earlier three years. It is predicted that this might increase the number of secondary sales in the residential sector. Also, under the new provisions, real estate developers will get a time limit of one year to pay tax on notional rental income on completed unsold residential inventory. As the tax payment has been deferred, this will boost tie-ups between landowners and real estate developers, propelling more supply of properties in the market.

iii)    Investment opportunities – With RERA coming into force, it opens up the prospects of developers to raise funds from foreign investors. With RERA in place, the real estate sector becomes more transparent and attractive from the perspective of an investment. This will enable developers to raise larger sums of capital faster and at better terms resulting in a decrease in the overall cost of capital.

iv)    Other financial benefits - Though greater rebates were expected in individual income tax slabs and additional tax benefits for first time home buyers, the latter was not touched upon whereas the former received slight relief with the tax rebate for individuals earning up to Rs. 5-lakh. This relief might result in demand in the residential segment. In addition, to this, the curb in cash transactions above Rs. 3-lakh, could help in stabilizing prices in the secondary real estate market.

 

 

Well, looking at the above-mentioned developments, it appears that the Union Budget 2017 did pay equal heed to the needs of the realtors as well as the buyers. It also indicates that a concerted effort has been made to improve the real estate scenario of the nation, through the Budget 2017.

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