Impact Of The Union Budget 2017 On The Real Estate Sector, As Stated By The Industry Players

Feb 02, 2017

The release of the Union Budget 2017 by Minister of Finance of India, Arun Jaitley, has created hustle in the real estate industry. His declarations have various implications on the housing industry including the builders, developers, investors, banks and of course, the end consumers. Read on to understand various real estate stakeholders explaining the effect of each testimony in the Union Budget related to the real estate sector on the Indian economy, and on Prime Minister Narendra Modi’s ‘Pradhan Mantri Awas Yojna’ (PMAY).

Arun Jaitley - Minister of Finance of India - Union Budget 2017

Arun Jaitley - Minister of Finance of India

To comprehend the impact of the Budget, it is imperative to identify and fully understand the key elements of the Budget that affect the real estate industry:

  • Affordable Housing has been given the Infrastructure status 
  • 1 crore rural houses will be created by 2019 
  • National Housing Bank (NHB) to refinance Rs. 20,000 crore loans 
  • Pradhan Mantri Awas Yojana to get Rs. 23,000 crore 
  • Real estate developers to get tax relief on unsold stock as liability to pay capital gains will arise only in the year a project is completed 
  • Instead of built up area of 30 and 60 sq. meters, the carpet area of 30 and 60 sq. meters will be applicable for affordable housing 
  • Holding period for capital gains tax for immovable property reduced from 3 years to 2 years 
  • Window for availing 3 year profit-linked incentives for start ups increased to 7 years against 5 years earlier 
  • Tax break of 1 year post receipt of the completion certificate, for the unsold stock 
  • New FDI policy under consideration 
  • No cash transaction above 3 lakh 
  • Indexation for capital gains shifted from 01-04-81 to 01-04-2001 

Impact on affordable, luxury and commercial housing sectors as stated by the industry stalwarts:

Representing the affordable housing space, Ssumit Berry, Managing Director, BDI Group sheds light upon how giving them the infrastructure status affects them positively. This government decision will firstly “open new avenues for the affordable housing segment. The new measure will reduce costs for developers and attract more investors.”

Mr. Ssumit Berry, MD, BDI Group - Union Budget 2017

Mr. Ssumit Berry, MD, BDI Group 

Concurring and adding on to Mr. Berry, Mr. Surendra Hiranandani, CMD, House of Hiranandani, opines that granting infrastructure status will act as an catalyst to the government's vision of “Housing for All by 2022”. This will lead to higher participation by private players in this segment as they can have access to institutional funding (NHB) and other government subsidies. Along with tax rebates for the salaried class, which will lead to higher disposable income and interest subventions this can be a potential winner in the long run. Similarly, the decision to increase the qualifying unit area for affordable housing from built up area to carpet area will lead to an increase of around 20% per unit for the end user. He appreciates the government increasing the time frame for completion to 5 years indicates as it accounts for the “practical and operational difficulties faced by developers in this category”. Moreover, the decision to tax capital gains on Joint Development Agreement upon completion of the project is a significant move. The tax break of 1 year post receipt of the completion certificate, for the unsold stock, and reduction of long-term capital gains to two years will provide respite to investors and developers.

 Mr. Surendra Hiranandani, CMD, House Of Hiranandani - Union Budget 2017

Mr. Surendra Hiranandani, CMD, House of Hiranandani

In agreement with Mr. Hiranandani, Mr. Gaurav Gupta, Director, SG Estates Ltd. highlights the fact that areas like Ghaziabad, Faridabad, Noida etc. will now be able to get incentives of the scheme by making houses up to carpet area 60 sq.meter (650 sq.ft) as against 30 sq. meter earlier. 

Mr. Gaurav Gupta, Director, SG Estates Ltd. - Union Budget 2017

Mr. Gaurav Gupta, Director, SG Estates Ltd. 

Representing the luxury-housing sector, Mr. Pankaj Bansal, Director, M3M reflects his positive reaction upon the new Budget in a different light! Speaking for his segment players, they can now “focus on building more affordable housing projects”. He also preaches that end consumers who have been deferring home purchase, will now have an easier way out with “the borrowing costs” reducing significantly and “the time period for long-term Capital Gain” reducing “by 33%”.

Mr. Pankaj Bansal, Director, M3M - Union Budget 2017

Mr. Pankaj Bansal, Director, M3M 

In all, our real estate seems happy with the declarations, but not fully content. Mr. Hiranandani and Mr. Gaurav Gupta anticipate clarity on ambiguous matters related to the Budget. The former leader calls for further amplification on redefining affordable housing, “keeping in view the different geographies in India” and on tax capital gains on Joint Development Agreement upon completion of projects as there are high chances of litigation due to the vague scenario. On the other hand, Mr. Gaurav raises the point of the Finance Minister not touching “upon increasing the tax exemption limits on housing loans or single window clearance or GST rules regarding real estate sector”.

 

Various such issues have risen for the Indian economy while majorly benefitting the end consumer. Will this year pose as a success for the country as a whole? Or will the desire to help the end consumer burden our developers after all?

 

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