Budget 2017: Infrastructure status to affordable housing to boost real estate markets
Budget 2017 has proposed infrastructure status for affordable housing, a long-standing demand of developers, and also increased the allocation for the Prime Minister Awas Yojana from Rs 15,000 crore to Rs 23,000 croreUpdated: Feb 04, 2017 17:03 IST
The housing sector is likely to get relief from the pain of demonetisation with the ‘affordability’ steroid. Budget 2017 has proposed infrastructure status for affordable housing, a long-standing demand of developers, and also increased the allocation for the Prime Minister Awas Yojana from Rs 15,000 crore to Rs 23,000 crore, bringing the country closer to realising the Housing for All mission by 2022. However, no specific incentives were announced for first-time buyers.
One crore houses are to be built by 2019 in rural India for the homeless and those living in ‘kaccha’ houses.
Calling it a “path-breaking Budget, experts say granting infrastructure status to affordable housing is significant as it will provide cheaper sources of finance to developers and also open up additional avenues for developers to raise funds. The segment will now be given priority lending status.
“We propose to facilitate higher investment in affordable housing. Affordable housing will now be given infrastructure status, which will enable these projects to avail the associated benefits,” finance minister Arun Jaitley said. With surplus liquidity created by demonetisation, he said the banks have already started reducing their lending rates, including those for housing. Interest subvention for housing loans has also been announced by the Prime Minister.
Highlighting affordable housing as a thrust area of tax proposals, he said: “In my budget proposals last year, I had announced a scheme for profit-linked income tax exemption for promoters of affordable housing scheme which has received a very good response.”
To make this scheme more attractive and to ensure homebuyers got value for money, carpet area (excluding public areas such as lifts, corridors) of 30 and 60 sq m would be counted instead of the built-up area.
The 30 sq m limit will apply only in case of municipal limits of four metropolitan cities while for the rest of the country, including peripheral areas of metros, the limit of 60 sq m will apply. This will effectively serve to increase the number of projects falling under this segment and also offer larger affordable housing units to buyers.In order to be eligible, the scheme was to be completed in three years after commencement and it is now proposed to extend this period to five years.
“Increase in allocation of funds under PMAY shows the focus of the government on Housing For All a reality by 2020. Providing infrastructure status to affordable housing, a long standing demand of the real estate industry, will not only bring the cost of financing down but will also open up additional avenues for developers to raise funds. We believe that the shift in eligibility criteria for affordable housing from built-up area to carpet area will increase the unit size by 20-30% and will offer homebuyers the benefit of owning larger units. This will also encourage leading real estate players to enter the affordable housing segment,” says Shishir Baijal, chairman and managing director, Knight Frank India:
Easy and dedicated access to institutional financing, higher limit on external commercial borrowings will attract more investments and assure sustained growth of affordable housing in India, making it the core driving segment for real estate. All benefits will be passed on to customers, bringing down cost of housing. “Long-term financing at lower rates will reduce costs of construction for developers allowing them to pass on benefits to consumers. The new status will increase the resource allocation for the sector, catalysing housing supply and reducing the supply gap,” says Brotin Banerjee, managing director and CEO, Tata Housing Development Company:
The Budget missed out on giving any additional income tax incentives to first-time home buyers or providing higher tax savings on housing loans and house insurance premiums. It, however, did provide some direct tax relaxation to the lowest income earners, and gave some clarity on the designated beneficiaries under the Pradhan Mantri Awas Yojana. A new Credit Linked Subsidy Scheme (CLSS) for the middle-income group with a provision of Rs 1,000 crore in 2017-18 was also announced. “ Extension of tenure of loans under the CLSS of Pradhan Mantri Awas Yojana (PMAY) was increased to 20 years from the existing 15 years,” says Anuj Puri, chairman and country head, JLL India.
The government also announced tax sops for builders sitting on a huge unsold stocks amid a multi-year slowdown in the real estate sector, particularly the housing segment. “At present, the houses which are unoccupied after getting completion certificates are subjected to tax on notional rental income. For builders for whom constructed buildings are stock-in-trade, I propose to apply this rule only after one year of the end of the year in which completion certificate is received so that they get some breathing time for liquidating their inventory,” Jaitley said.
The finance minister also proposed to make a number of changes in the capital gains taxation provisions in respect of land and building. “The holding period for considering gain from immoveable property to be long term is three years now. This is proposed to be reduced to two years. Also, the base year for indexation is proposed to be shifted from April 1, 1981 to April 1, 2001 for all classes of assets including immovable property,” he said.
Long awaited clarity on taxability in case of Joint Development Agreements (‘JDA’) – this will reduce litigation on the point of taxation for land owners and will provide an impetus to execution of more JDAs in this time of cash crunch faced by the sector.
The budget announcement that cash transactions above Rs 3 lakh would not be permitted is also likely to have an impact on land transactions.
First Published: Feb 01, 2017 16:52 IST