Affordable Housing, Easing Capital Gains Tax – Budget 2017 Brought Relief To Real Estate

Budget 2017 for Real Estate – A Glance
Affordable housing developers now can take a sigh of relief as they can have most of the benefits for real estate market according to Union Budget 2017. Good news rolled out as the finance minister Mr. Arun Jaitley gave easing off of the capital gains tax and bringing low-cost housing.

As per Budget 2017, the developers can now seek institutional funding besides several subsidies, incentives, and tax benefits. The key factor that gave a boost to the decision of bringing affordable housing programme is the raising of rural housing allocation by 50 per cent. In the meanwhile, Neeraj Bansal – BCRE Sector’s Partner and Head, KPMG, India, is  expecting government to set free the prime urban land for the purpose of affordable housing plan.

On the other hand, relaxation on tax over long term capital gains and joint development agreements, are also expected to be ease off tax liability from on the builders’ head.

The changes in income tax slabs have also been noted in the Budget 2017 and this will, certainly, bring about positive change in the disposable incomes and thus, the real estate. The rebate for the individual income slabs of up to Rs. 5 lakhs, as was expected by the real estate sector, is announced and is expected to be a helpful move increasing the disposable income. The latter, in turn, will be a backup in case of spurs consumption and the plan and demand for housing will meet positive effects.

Changes brought in terms of Capital Gain Tax –
Tenure for Capital Gain Tax in Budget 2017 has been reduced to 2 years from 3 years. In addition to this, developers will have relaxation of one year to pay the tax levied on notional rental income for the properties that are ready-but-unsold.

Union Budget 2017 for Reality Segment in Detail:
With continuous stress on ‘housing for all’ by the Modi government, Budget 2017 as presented by the Finance Minister Mr. Arun Jaitley contains similar lines. Eyeing on more participation from private players, budget 2017 has paved a way for cheaper funding for developers as well as first time home buyers by granting ‘affordable housing’ and ‘infrastructure’ status. This move is expected to act as a major component to attain the objective of “Housing for All” by 2022 and it will allow a number of good companies along with External Commercial Borrowings to venture into affordable housing. This sector prominently contributes to the 15% of country’s Gross Domestic Product (GDP).

In order to bring more transparency into the real estate segment, cash transaction above 3 lakhs shall not be allowed which will stabilize the prices in secondary real estate market. A New Foreign Direct Policy (FDI) is already into consideration with a view to attract more Foreign Direct Investment within the sector. Various other highlights will brighten the realty segment directly or indirectly are as follows:

1. Taxation of Capital Gains of Joint Development Agreement
This required change has been proposed within Budget 2017, where the landowner develops a property under joint development agreement, shall only be subject to capital gain when the projects get completed. This move will not just avoid litigations but will bring more clarity by unlocking land for development as well.

2. Low Cost Housing
As the criteria of affordable housing area have been changed from 30/60 sq metre built-up area to 30/60 square metre carpet area, this segment has become more lucrative. Since the homebuyers will now get options for more spacious housing, builders shall also be able to market their property to a larger segment of prospective buyers.

3. Tax Break of 1 year
The move has brought some sigh of relief for the builders as they will be able to save taxation cost post 1 year of obtaining the completion certificate for their unsold inventory. In such scenario, as the cost of unsold inventory shall not get inflated with the liability of taxation, prices of the housing will remain steady for 1 year post completion of the project. It will also discourage the speculative investments which will further pull down the price volatility.

4. Reduction in Income Tax Rate
Since the basic earning slab has been reduced to 5% for the individual having income between Rs. 2,50,000 and Rs. 5,00,000, it will boost the disposable income of these individuals by Rs. 12,500. Various banks have already reduced the home loan rates, various incentives have been provided on low cost housing. All these factors together will fuel up the demand for the affordable housing segment.

5. Increase in Project Completion Timelines
Another big sigh of relief for developers as they will now get more time to sell off their inventory. The project completion timelines have been raised to 5 years for the affordable residential projects.

6. Greater Inflow of Funds within Reality
With the positive sentiments within real estate segment and an upswing in the demand in view of various incentives provided by the government, banking sector shall also be willing to lend more for the affordable housing project. This will help in timely transfer of possessions to the homebuyers as the projects shall not get delayed due to lack of funds.

7. Shift in Capital Gain Indexation
From 01.04.81 to 01.04.2001, the slab for indexation has been shifted under the budget which will help in reducing the liability of taxation on capital gains.

8. Incentives for Startups
Time period for 3-year profit-linked incentives are revised and is decided as 7 years which was 5 years earlier. Moreover, the condition of holding 51% of voting rights has also been relaxed for the purpose of carry forward of losses, provided the holding of the original promoter(s) continues.

9. Reduction in the holding of Immovable Period
Earlier an immovable property which is held longer than 3 years shall gets accounted for Capital Gain Tax. This budget has brought an amendment in the periods of holding and brought it down to 2 years. It is expected to fuel the secondary sales in the market.

10. Tax Exemption for Medium Enterprises
Post demonetization, many small builders in the country were affected adversely. This budget has brought a relief by providing a tax exemption of 5% for enterprises having turnover below Rs. 50 crores.

11. Extension for Minimum Alternative Tax (MAT)
As requested by start-ups to remove the MAT, finance Minister has relieved them partially by extending their carry forward period from 5 years to 15 years.

From infrastructure, affordable housing and manufacturing, the Budget 2017 has initiated all the efforts in the development of new industrial cities and thus decongesting urban, improving connectivity and making many housing projects in city outskirts more viable from the prospective of living:
1. Infrastructure sector has been allocated Rs. 3,69,135 crores of funds for the infrastructural developments.
2. Extension up to 6000 district is granted under Indira Awas Yojana (IAY).
3. Rs. 64,000 crores have been allocated for the development of highways connecting far flung areas to the main    stream.
4. To boost the transportation infrastructure, Rs. 2.41 lakhs has been granted under the budget.
5. A fund of Rs. 23,000 crore if granted to Pradhan Mantri Awas Yojana.
6. National Housing Bank will refinance loans up to Rs. 20,000 crores which will give a big push to affordable    Housing Finance Companies like Gruh Finance, AU housing and Repco.
7. By 2019, around 1 crore rural housing shall be provided.
8. Highest ever allocation to MGNREGA at Rs. 48,000 crores.

This budget will positively impact the realty sector by providing better options for the middle-class as well as the lower-middle class aiming to buy their first homes. The real estate will surely witness enhanced demand with reputed, organized and credible players on the ground. There is no surprise that homebuyers in 2017 will have the best time with surplus liquidity and lower cost of funds from banks.