It’s Budget time yet again, and hosts of expectations and aspirations for ‘relief’ from the stressed real estate sector as usual. The Union Budget 2017 presented by Finance Minister Arun Jaitley indeed has something to cheer about for the home buyers.
Infrastructure Status to Affordable Housing
The Modi government has surely appeased the middle class and neo middle class by announcing infrastructure status to affordable housing segment and providing income tax benefits to the lower income earners as the tax rate for income between Rs 2.5 lakh to 5 lakh has been reduced to 5% and taxpayers in other categories can also save upto Rs 12,500 per annum.
The move will create more disposable income for home buyers of the respective salary brackets, who can look for suitable real estate investments in the coming months.
The infrastructure status to affordable housing will infuse fresh impetus into developmental projects as developers can now look for cheaper loans to start low-cost housing projects in tier II and Tier III cities and also in rural areas. In addition, qualifying size limit for affordable housing has now changed from built-up area to carpet area of 30 sq.m. and 60 sq.m. for projects only within municipal limits of the 4 metro cities. In the rest of the country, 60 sq.m limit will apply. This move will encourage developers to start building new projects in this category, thus giving a big push for affordable housing.
Buy and sell in two years!
The bringing down of capital gain time limits for properties to two years from three years will benefit both investors and second hand home buyers as the latter will have more options to choose the best available property at lower prices. For investors, they can offload properties after two years of holding and go for more profitable realty investment.
No second home please!
To curb wealthy investing multiple homes and getting away with interest subsidies and tax benefits, the government has proposed to cap the benefits for second home buyers. Tax benefit on loan repayment of second home will be extended up to Rs 2 lakh per annum only. The move will discourage second time home buyers in making new investments to seek tax benefits, thus leading to lowering of demand for new homes. Lower house prices is a good home buyers who are buying their homes for own use.
Taxing the wealthy
On the other hand, the government has proposed to tax for those getting rental income above Rs 50,000 per month. Tenants can henceforth deduct 5% TDS from the rent they pay and deposit it in owners’ tax account. The proposal will benefit the government to unearth more unaccounted rental incomes as home owners will be compelled to show the rent received as income in their corresponding IT return. However, the proposal may increase the rentals across cities as owners may pass on their TDS loss to occupants by jacking up the rent, a big negative for rental real estate.
Low interest rate may trigger housing demand
With demonetization bringing more liquidity to banking sector, the lending rate is expected to go down further in the coming months if other metrics remain stable. This will trigger demand on various housing categories. Though the government has reduced the interest rates up to 4% for neo middle income group home buyers for low budget homes, unless the overall lending rate comes down further, demand for new homes will not see a significant rise in the near future.
Overall, the Budget proposals for 2017-18 can be seen as a positive move to revitalize real estate sector and bring new hope to buyers to have their own home this year. With rural housing and infrastructure and low income groups getting prominence, the government has surely set its sight on making homes affordable for everyone by 2020.