Realtors had been anxiously waiting for the recommendations of the Group of Ministers on GST in real estate. A major expectation from the budget was a proposal on GST for real estate. However, that hasn't been the case. Yet, realtors believe that the set of proposals announced by the Finance Minister were significant silver linings in the cloud.
Many believe that tax concessions (a rebate on tax for those earning salaries up to Rs 5 lakhs), pension scheme, and a policy to credit farmers owning less than 2 hectares land with Rs 6,000 per annum would uplift the rural economy.
Also, many realtors believed that incentivizing home-sellers who purchase flats by way of tweaking the capital gains tax would improve housing prospects. In his maiden budget speech, Chartered Accountant cum Finance Minister Piyush Goyal shared an example that if one were to sell their house and route the money in buying two houses up to the ceiling limit of Rs 2 crores, there wouldn't be the impact of capital gains tax.
The factor on notional rent was also covered in Goyal's speech and this endeared him to many realtors.
Khushru Jijina, MD at Piramal Capital and Housing said "The Interim Budget for FY20 aims at a fine balance between the upliftment of the rural economy as well as incentivizing the high spending urban middle class. The budgetary provisions for India's rising middle class is expected to stimulate demand and help attain the targeted economic growth. Budgetary outlays aimed at the real estate sector are encouraging for the sector. Benefits like rolling over capital gains tax to two homes and exempting income taxes on imputed rent for the second occupied home would stir up home demand especially in the affordable segment."
Jijina added, "Additionally, the real estate developers would be benefited by the extension of the exemption period for levying tax on unsold inventories at a time when the sector is undergoing liquidity stress. Also, we expect a favorable decision from the GST council overseeing ways of normalizing the tax's impact on developers as well as end consumers."
Besides realtors, even experts from the financial sector seemed to be happy with the developments for EWS and LIG groups. "The disposable income of EWS and LIG category borrower will increase with the exemption of tax on annual earnings upto Rs. 5 lakh and also increase in standard deduction by Rs. 10,000. The developers for new projects are also incentivise with the Income Tax exemption available till 2020 thereby keeping the prices in check," said Ramratthinam S, CEO of Muthoot Homefin (India) Ltd.
Knight Frank's CMD Shishir Baijal explained in a note that the budget ensured better liquidity and lower tax burdens on the purchase of homes. "The benefit of rollover of capital gains has been increased from one house to two houses, upto INR 2 Crores (once in lifetime), is a tremendous step by the government that will boost sales in both primary and secondary markets. On a broader canvas, the changed direct tax implications including exemption of taxes till INR 500,000 p.a. automatically increases the disposable income, especially for the middle-income groups. We believe this step along with the increased standard deduction limit will in some way translate to an improved affordability for house purchase, thus aiding demand for the sector."
Baijal added, "A back of the envelope calculation on the new standard deduction rates and other direct tax sops give us a figure of an annual taxation exemption of almost INR 7- 9 Lakhs per annum. We believe that a fair part of the savings from this could be channelised towards real estate. Additionally, the provision of increasing the number of self-occupied properties from one house earlier to two houses now will augment the house purchase decision for people supporting families in another city/towns."
Speaking on the supply side, Baijal explained, "The government has taken into consideration the challenge of unsold inventory and has therefore increased the period of exemption for notional tax on unoccupied units from the prevalent 1 year to 2 years. This will give developers a big relief allowing them to concentrate on sales strategies. To further boost the affordable housing, the government has extended the benefits Under Section 80 (IBA) till 31st March 2020. The government's commitment towards affordable housing continues and we expect to see more such projects coming into the market. The demand for housing is strongest in the affordable segment."
Parth Mehta, Managing Director of Paradigm Realty espoused similar sentiments. He said that improvement of ceiling for TDS deducted on rental income was a welcome move. "The TDS threshold for deduction of tax on rent which is proposed to be increased from Rs. 1,80,000 to Rs. 2,40,000 will provide impetus to investments in real estate," he said.
He summarized, "The real estate sector is already going through a turmoil, with no clarity in GST, NBFC crisis, no support from banks alongside high interest rates, hence a little emphasis on the real estate sector with regards to the GST reduction and clarity on input-output credit which is pending could have been a big booster for the industry. Overall it was a decent budget and will upsurge consumption in the economy, however, revision of GST is priority which most of the stakeholder in the sector would have liked to see in the budget although Finance Minister explicitly mentioned that the group of ministers will review the same and if that one thing can be done i.e. GST rates can be lowered in the under construction properties than it may be a turning point for the sector and boost the sector at large."
For individual home-buyers and those keen on buying a property, the challenge of getting a housing loan remains. And Sadly the budget does not speak on making it easy to get a housing loan.
But there is hope, after all Goyal's speech on Friday is an interim-budget. The final budget will be presented post the elections. And this may offer a few more clarifications and tweaks.