The government’s move to demonetize of Rs 500 and Rs 1,000 currency notes had an adverse impact on the real estate sector. However, in the long run, the demonization is likely to prove beneficial for the realty sector. Further, the government has made some favorable announcements in the Union Budget 2017-18, which are expected to boost the realty sector. Here are some of the key highlights of the Budget in terms of its impact on the realty sector.
Infrastructure status – The affordable housing segment has been granted the infrastructure status. This was one of the long pending demands of the realty industry. The infra status will help the government to achieve its Housing for All mission by 2020. It will also help attract more investments and make available cheaper funding to builders.
Loan Refinance – The budget provides for refinance of individual loans totaling to Rs 20,000 crore in 2017-18. This refinance will be provided by the National Housing Bank. It is expected to give a major boost to affordable housing companies.
Tax Exemption – Residential real estate developers can now claim one year tax exemption on notional rental income from unsold inventory. This will be a huge relief for builders who may have unsold inventory. Demonetization has led to increased real estate inventory/stock with builders.
Capital Gains on Joint Development Agreement (JDA) – This tax on capital gains on JDA will become applicable only after the completion of the project. This new rule will be instrumental in making more land available for development and in reducing litigation.
Reduced holding period – In a relief to investors, the holding period has been reduced from 3 years to 2 years. It means that investors can now sell their property after 2 years to claim the benefits of long term capital gains on immovable properties.
Change in base year – For calculating Indexation for long term capital gains, the base year has been changed from 1981 to 2001. This will automatically reduce the overall gains and in turn reduce the amount of applicable taxes.
Big boost for PMAY – The government has provided Rs 23,000 crore for the Pradhan Mantri Awas Yojna (PMAY). The funds will be utilized to build one crore houses by 2019. Those living in kachha houses will benefit from this scheme.
Affordable houses to get bigger – Earlier, there was 100% tax exemption on profits for builders who built homes having built-up area of up to 30 sq meters in the four metro cities and up to 60 sq meters in other cities. Now, the size of such houses will be measured according to their carpet area, which means that affordable housing will now provide larger spaces to live.
Home loan rates – With positive announcements in the budget, home loan rates are expected to come down even further.