All eyes were on the Finance Minister as he delivered his fifth full Union Budget – the last one before the general elections in 2019. As expected, the budget turned out to be populist and sounded excessively cautious while the need of the hour was to provide a positive boost to the economy, which is reeling under the pressure of structural changes and policy reforms.
The Budget did not offer any substantial incentives to individual taxpayers, with slabs remaining constant. A change in the standard tax deduction in lieu of transport and medical expenses, which now stands at INR 40,000, was the only gift to the salaried class. There was no change in tax savings on home loans, nor were the 80C limits raised. While this put paid to any hopes for significantly increased home buying appetite, there were some notable announcements with positive implications for the real estate sector:
- The continued push for affordable housing: As many as 51 lakh houses in rural areas are to be built in 2018-19. Also, a dedicated Affordable Housing Fund was announced in this Budget. These are the right moves towards achieving the vision of Housing for all by 2022.
- The Budget addressed the anomaly under Section 43 CA to tax real estate transactions at their real value rather than the value arrived at by applying artificially higher circle rates. As per new announcement, if the circle rate does not exceed 5% of transaction value, no adjustment is required towards the capital gains on a real estate transaction. It will help in terms of some extra savings if there is parity between the market rates and the ready-reckoner rates. Cities which are not under the heavy influence of real estate investors and where prices are rational may benefit from this announcement.
- Improvement in regional air connectivity: The regional air connectivity scheme to connect 56 unserved airports is a good news for business growth and office space demand in smaller cities, with a natural spinoff demand for housing on the back of job generation.
- Curbing cryptocurrencies: The Government is landing down heavily on cryptocurrencies such as Bitcoin. There was conjecture that cryptocurrencies would find their way into Indian real estate, as it has in developed countries, effectively becoming the 'new black money' in the sector. With the Government committed to taking all necessary steps to eliminate the use of cryptocurrencies in India, people who were looking at them as a get-rich-quick route will have to look at traditional asset classes and investment routes again.
- Increase in taxpayers: With the massive crackdown on black money, the taxpayer base has increased significantly. This is, at least indirectly, good news for the real estate sector as seeking home loans is now going to be easy for a larger set of individuals.
- Allocation of INR 1 lakh crore to update education infrastructure over the next four years may result in the development of new education institutes. In addition, if the Government emphasizes more on a definitive student housing policy, a new avenue will open up for the real estate sector.
- The allocation of INR 5.97 lakh crore on infrastructure spending is a welcome move, though we need a massive push to ensure that the country's infrastructure meets global standards.
In a nutshell, while there were not many takeaways for the individual taxpayers, the Budget also did not seem to favour any particular sector. With fiscal deficit slipping to around 3.5% of GDP in 2017-18, the Government seems to be on the right path of taking charge of things and ensuring that the fiscal deficit target of 3.3% of GDP for 2018-19 is achieved.