I-T rebate may boost affordable housing
The government on Friday allowed a rebate on taxable income between ~2.5 lakh to ~5 lakh per annum in the interim Budget for 2019-20 (FY20). Experts believe this might boost the prime minister’s housing for all initiative, as it would provide additional disposable income to potential buyers of affordable homes.
The size of the real estate sector in the country is $200 billion. Around 15.3 million houses have been constructed under the Pradhan Mantri Awas Yojana (PMAY). “From 2014 to 2018, 15.3 million houses have been built under the PMAY,” Finance Minister Piyush Goyal said in his Budget speech.
The flagship scheme has received an allocation of ~25,853 crore in the Budget for FY20, compared to ~26,405 crore in FY19 — a decrease of almost 2 per cent. “The reason for the decline is that most of the development in the PMAY now would be organic, based on private players providing affordable housing. However, the allocation is enough for the government to go ahead with its own plans,” said a senior official in the urban development ministry.
The math
Industry experts believe the rebate could help increase disposable income of homebuyers. If a person earns ~6.5 lakh per annum and takes 80 C benefits of ~1.5 lakh, he would be in the tax-free category. With ~5 lakh annual taxable income, he should be able to garner a loan of ~18-20 lakh for 20 years at current rates of interest of 8-9 per cent (appoximate annual equated monthly instalment of ~20,000). “The rebate along with the increased standard deduction will translate into improved income for affordable homes. This will increase demand for the sector,” said Shishir Baijal, chairman and managing director, Knight Frank India. Launches will increase
According to ANAROCK Property Consultants, the affordable price segment has dominated the residential units’ supply. Recent launch trends show that demand for affordable housing with ticket sizes in the range from ~5 lakh to ~40 lakh is growing.
Industry experts believe over the next year close to 150 affordable housing projects might be rolled out. At present there are close to 100 affordable housing projects that are in various stages of completion. Developers are already anticipating a slew of new launches. “It will pave the way for new launches in affordable housing,” said Sanjay Dutt, MD and CEO at Tata Realty.
Tenants to homeowners?
Experts believe the threshold for the tax deducted at source for rent is proposed to be increased from ~1.8 lakh to ~2.4 lakh to provide relief to small taxpayers, and might push sales of affordable houses. “There will be no tax on house rents up to ~2.4 lakh from the previous limit of ~1.8 lakh. This can attract more investors to buy second homes for rental income. The rollover of capital gains tax on sale of houses has been increased from one to two houses. This is a good move to incentivise genuine homebuyers and investors to buy new properties,” said Anuj Puri, chairman, ANAROCK Property Consultants.
Relief on unsold inventory
The finance minister has also extended the period of taxing unsold inventory to two years from currently one year. This is expected to give big relief to developers as the country’s top 27 listed realty companies had unsold inventory worth ~1.13 trillion, up 21 per cent from ~93,358 crore at the end of the March quarter. “Developers will not be in a hurry to sell now and give deep discounts. Their tax burden will reduce,” said Amit Bhagat, chief executive of ASK Property Investment Advisors. However, some experts are of the opinion that real estate prices are still high and the impact might be nominal.
“Keeping in mind the current real estate prices, the move does not look to be that beneficial for the common man,” Partho Dasgupta, partner, tax and regulatory services, BDO India.