The Union Budget 2017-18 was in line with the earlier narrative and gives major push to infrastructure and affordable housing sector. There is a major and cohesive impetus towards driving the housing for all promise through enablers for affordable housing, addressing both demand and supply side issues.
One of the biggest developments for the realty sector in this budget is affordable housing getting infrastructure status. Also, now bigger unit area qualifies for affordable housing making more units applicable for affordable housing benefits. This move would not only push affordable housing in tier 2 and 3 cities but the sector would also attract better investments. More builders would now target this sector as they will be able to avail flexible long-term funding at lower costs. Affordable housing is where maximum housing demand in the country is and the budget 2017 clearly moves a step closer to achieving the dream for Housing for All.
The move to tax unoccupied houses a year after getting completion certificate would discourage speculative investment in housing and would encourage long term investments, thereby reducing susceptibility to price volatility.
The holding period of Long Term Capital Gains Tax (LTCG) for land and immovable assets has been relaxed to 2 years. This might increase the number of secondary sales in the residential sector. Another positive move was the government’s intent to extend basket of financial instruments to which the capital gains can be invested sans payment. The curb in cash transactions above INR 3 lakhs would help stabilize pricing in the secondary real estate market.
Many were expecting additional tax benefits for first time home buyers, but that area was not touched upon in the budget. Personal income tax benefits are negligible to motivate people to buy a home.
Allocation of INR 396,134 crores to the infrastructure sector with INR 60,000 crores to highways is a great move. This would not only improve connectivity in the country but would also make many housing projects in city outskirts liveable due to their improved connectivity.
The 5% tax exemption for medium enterprises having turnover below INR 50 crores would give relief to many small builders in the country who were worst affected post demonetization.
The phasing out of The Foreign Investment Promotion Board opens up the prospects of developers to raise foreign funds particularly in the light of RERA coming into force, which makes the sector more transparent and hence attractive from an investment perspective through the FDI route. Developers will be able to raise larger sums of capital much faster and at better terms, which will help in bringing down the overall cost of capital and help protect margins.