CREDAI Bengaluru's Union Budget 2017 reaction- Affordable Housing Gets Infrastructure Status, big boost to real estate sector.
Affordable Housing Gets Infrastructure Status, big boost to real estate sector –Union Budget 2017
Bangalore, February 1st 2017: In what is being hailed as an “Uttam” Budget, Finance Minister ArunJaitely put forward a Budget that seems to have something for everybody. One of the key developments with this budget has been the announcement of infrastructure status being accorded to affordable housing. This is a serious boost in the arm for the real estate sector which has also seen an increase in funding allocation under the Pradhan MantriAwasYojnana (PMAY) from Rs 15,000 crore to Rs 23,000 crore.
Speaking on the effect of the announcements made for affordable housing, Mr. Nagaraj Reddy, Chairman, CREDAI-Karnataka says, “Real estate developers in Bangalore have been an integral part of contributing to the “Housing for All by 2022” dream of the Honorable Prime Minister. We have a number of projects in the 1 and 2BHK configurations in areas such as Anekal City, Hoskote, Budhigere Cross, Doddaballapur Road, Hosapalya, Hongasandra, Kambipura, Amruthahalli, Bommanahalli, Hennur etc. With this budget, the subsidy scheme that was announced by the Prime Minister in December 2016 of providing a 6.5% subsidy for first time buyers investing in a home of 65 sqmts and with an income of less that Rs 50,000, will have its eligibility announced soon. Along with the reduction in tax on the salaried, these two factors can be a huge boost to the sector”.
Speaking on the Budget and the announcements towards the financial standing of the realty sector, Mr. J. C Sharma, President, CREDAI-Bengaluru says, “This has been a balanced budget for the sector with areas such as infrastructure, growth, housing and private as well as foreign investments all being addressed. With the announcement that the government borrowing program has been lowered strategically, it also means that there is now a chance for interest rates to be pushed down further. While these new measure will definitely attract investors and augment resource allocation for the sector, the same should also benefit its allied sectors. The tax incentive of increasing the period for completion under the housing project within 5 years' (as against 3 years’) and making the carpet area (instead of built-up area) as the criteria is a welcome move”.
The specific relief granted on the tax front, such as reducing the holding period for immoveable property from 3 to 2 years, and shifting the tax incidence on joint development agreements at the time of completion provides much needed clarity to some of the tax ambiguities plaguing the sector. However, the statement on relief to developers on notional rent on unsold inventory for a one year period implies that it will otherwise be taxable, and this could result in a rush to liquidate inventory and perhaps, a reduction in prices”
Speaking on the opening up of the market with the reduction in income tax for the salaried class, Mr. Suresh Hari, Secretary, CREDAI-Bengaluru says, “As a sector we were not looking at drastic measures to be taken, rather, simple, small steps, all working towards the goal of enhancing the real estate sector. I believe this has been done with this budget. With the lowering of tax for the salaried class, especially those in the Rs 3 to Rs 5 lakh per annum segments, the government has now ensured that there is more spending power and this will drive investments in real estate. Further, the announcement of National Housing Bank refinancing individual loans worth INR 20,000 crore in 2017-18 is likely to give a push to affordable housing.”
Experts from the real estate sector in the city also believe that with the abolition of the Foreign Investment Board and the announcement to a new roadmap to a better FDI policy will ensure that the sector gets a financial shot in the arm. This along with the introduction of GST by July 2017 will put the sector on the right path to increased development.
Union Budget 2017-18, "Reaction on Union Budget 2017-18 by Real Estate Developers".
According to Mr. Prashant Tiwari, Chairman, Prateek Group: "Finance Minister announced that the project will now be sold on the basis of carpet areas that will help the buyers know the exact area that they are getting. Focus of the budget is on infrastructure development including airports and roads, this will help in healthy growth of real estate sector also. Announcements like new FDI policy under consideration and tax relief on unsold stock as liability to pay capital gains will arise only in the year a project is completed will give boost to the sector".
According to Mr. Gaurav Gupta, Director, SG Estates Ltd. "Good Budget for Real Estate perspective because of complete clarity on affordable housing. The criteria for low cost / affordable housing has been changed from built-up area of 30 / 60 sq mtrs to carpet area of 30/60 sq mtrs, thus making the low cost – affordable housing segment more lucrative for us and also making the segment more attractive for the buyers. With the change in criteria from built-up area to carpet area, the purchasers get more spacious homes and the builder is able to market the property to a larger segment of buyers. Also areas like Ghaziabad, Faridabad, Noida etc will now be able to get incentives of the scheme by making houses upto carpet area 60 sq.meter (650 sq.ft) as against 30 sq.meter earlier. Infrastructure status has been granted to affordable housing thus ensuring more liquidity for the real estate and access to funds at lower costs. This will motivate more builders to develop affordable housing units which is the need of the country. Project completion time under affordable housing scheme increased to 5 years as against 3 years earlier, thus making it more practical. Tax arising on unsold inventory given some breather by making it applicable post 1 year of completion. However, the FM did not touch upon increasing the tax exemption limits on housing loans or single window clearance or GST rules regarding real estate sector. We hope these things will be touched later".
According to Mr. Akshay Taneja, MD, TDI Infratech Ltd. "We welcome the infrastructure status being given to the affordable housing sector, it will help achieve the target set to cater to this most important segment, which is the need of the hour. We will now see more of such projects being announced in the recent future. With this announcement, the banks will now lend more to projects in the affordable housing segment. Another budget announcement that will help the real estate market is the announcement of focus on making airports in tier II cities through PPP model. This announcement will lead to more housing and real estate projects come up in the vicinity of the airports in these cities".
Reaction on "Union Budget 2017-18" || Deepak Kapoor, President, CREDAI Western UP
According to Mr. Deepak Kapoor, President, CREDAI Western UP: "One of the best thing to happen to real estate sector is the industry status being given to affordable housing. This will help in increasing liquidity as banks will be more keen to extend loan to the developers for affordable housing. To promote affordable housing, the Finance Minister said that the scheme for profit linked income tax exemption for promoters of affordable housing will be broad based. Instead of built-up area of 30 and 60 sq. mtrs., the carpet area of 30 and 60 sq. mtr. will be counted. Also the 30 sq. mtr. will apply only in case of municipal limits of four metropolitan cities while for the rest of the country limit of 60 sq. mtr. will apply. Another practical aspect and respite to the developers is that the houses to be built under affordable housing can now be completed in five years after the commencement of work as against the three year period earlier".
REALTY SECTOR HAILS THE UNION BUDGET 2017-18
The much awaited Union Budget 2017-18 has been finally announced and has scored high in terms of impressing the countrymen, with the realty sector making the most out of it. This being the third extensive Budget presentation by the current government, and first after the recently concluded 50 days of Demonetisation, the government was observed to be pro-active in terms of offering incentives and rebates to the people. The New Year Eve of 2017 saw incentives announced for the affordable housing segment which was followed by the banks declaring lending rate reductions very next day. Teasers about positive changes in the personal income tax structure were making rounds well ahead of the Budget day too. By granting infrastructure status to the affordable housing segment, reducing the tax rate for the initial slab and big plans laid for the infrastructural development of the country, this Union Budget has expressed its road ahead for the realty sector of the country which will now bet big in near future. As predicted, a common man’s Budget has been presented and this is expected to bring about a transformation in the economy.
Key Economic Highlights:
CPI inflation dropped to 3.4 percent from 6 percent.
Trade deficit dropped from 1 percent of the GDP to 0.3 percent of the GDP.
FDI increased from INR 1.07 lakh crore to 1.45 lakh crore.
Forex $ 361 Billion which is equivalent to sustain 12 months of imports.
GDP stable at 7.3%.
Revenue Deficit stands at 1.9%
Key Hits from the Budget:
Infrastructure Status accorded to Affordable Housing also redefining the unit sizes of 30 sq. mtr. and 60 sq. mtr. from built up area to carpet area. Projects in the direct municipalities of the four metropolitans to be considered for 30 sq. mtr. capping, rest all regions to have the capping at 60 sq. mtr. for affordable housing.
Affordable housing projects to be awarded a completion time of 5 years from launch as against the previous tenure of 3 years.
Developers to get one year’s time to pay tax on notional rental income on completed unsold residential inventory.
Tax benefits to the middle income group providing tax rate cuts of 5% for people in the income slab of INR 2,50,000 to INR 5,00,000. Additional reduction of INR 2,500 for people earning INR 3,00,000 annually making their total tax component zero. Reduction of INR 12,500 allowed on the final tax figures of remaining slabs.
Income Tax rate for MSMEs with turnover upto INR 50 crores reduced to 25% from the earlier rate of 30%.
Pradham Mantri Gram Awas Yojna to build 1 crore houses by 2019. INR 23,000 crores allocated for this financial year compared to INR 15,000 crores in the last financial year.
Pradhan Mantri Gram Sadak Yojna allocated funds of INR 19,000 crores which will cumulatively amount to INR 27,000 crores with the contribution from states.
INR 64,000 crores allocated for Highways against last year’s INR 57,676 crores. This would also include 2,000 Kms of coastal connectivity which have been identified.
A total of INR 3,96,135 crores have been allocated towards infrastructure development which is the highest in history.
Airports in smaller towns to come up on PPP model.
FDI norms to be further liberalised and online application to be enabled for FDI. FIPB to be abolished.
Key Misses from the Budget:
Industry status for the real estate sector.
Single window clearance system not yet operational Pan - India.
No changes in the exemption limit for income tax.
No changes in the savings or investments cap.
No cushion for the reduction in the rate of interest on loans borrowed by developers for building projects.
No major benefits announced for the allied industries like steel, cement, iron, sand, etc. that serve as the backbone for the raw material needs of the realty sector.
Industry Reacts: