Budget Boost to Realty: Tax Holiday for Affordable Housing & Push to Rental Housing

FM announced a tax holiday on profits earned by developers of affordable housing.

NEW DELHI: Trying to provide a further impetus to the ailing housing sector, Finance Minister Nirmala Sitharaman on Friday allowed an additional deduction of up to Rs 1,50,000 on interest paid on home loans borrowed up to March 31, 2020 for purchase of an affordable house valued up to Rs 45 lakh. This will be in addition to the existing interest deduction of Rs 2 lakh, the FM said in her Budget speech.

With this, a person purchasing an affordable house will now get an enhanced interest deduction up to Rs 3.5 lakh, Sitharaman said in her Budget speech. This move is expected to translate into a benefit of around Rs 7 lakh to middle-class homebuyers over their loan period of 15 years.

In order to align the definition of affordable housing in the Income-tax Act with GST Act, the Finance Minister proposed to increase the limit of carpet area from 30 square meters to 60 square meters in metropolitan regions and from 60 square meters to 90 square meters in non-metropolitan regions. Sitharaman also proposed to provide the limit on the cost of an affordable house at Rs 45 lakh in line with the definition under the GST Act.

For realization of the goal of Housing for All and affordable housing, the FM announced a tax holiday on profits earned by developers of affordable housing.

Among other measures announced to lift housing sectors, the Finance Minister shifted the base year for holding period to calculate long-term gains from immovable property to 2001 from 1981. The holding period for calculating long-term gain on immovable property was reduced from 36 months to 24 months, while a safe harbour of 5 per cent on stamp duty value was provided for the purpose of computation of capital gains on immovable property.

In a move to promote rental housing, the Finance Minister said several reform measures would be taken up to promote rental housing. “The current rental laws are archaic as they do not address the relationship between the lessor and the lessee realistically and fairly. A Model Tenancy Law will be finalized and circulated to the states soon,” she said.

KEY HIGHLIGHTS

  • Deduction of interest on loan taken to purchase self-occupied house property was increased from Rs. 1.5 lakh to Rs 2 lakh.
  • 100% deduction was provided for the income of affordable housing projects.
  • The base year for computation of long-term capital gains was shifted from 1981 to 2001.
  • Holding period for long-term gain on immovable property was reduced from 36 months to 24 months.
  • Safe harbour of 5 per cent on stamp duty value was provided for the purpose of computation of capital gains on immovable property.

The Budget announcements though failed to cheer realty stocks. At 2.41 pm, shares of Prestige Estateswere trading 4.78 per cent lower at Rs 273.95. Oberoi Realty, Mahindra Life and Phioenix Realty fell between 2 per cent and 4.75 per cent.

DLF fell 1.52 per cent to Rs 191.55. Indiabulls Real Estate and Godrej Properties also declined half-a-per cent each. Sobha and Omaxe bucked the trend rising 1.86 per cent and 0.10 per cent, respectively.

On many fronts, this was a favorable and bold Budget for the real estate industry. A massive boost for infrastructure will not only benefit the realty sector, but also help other industries and create large-scale employment in the economy. The government focus on infrastructure development of tier 2 and 3 cities will surely make these cities ready for next round of urbanization,” said Surendra Hiranandani, Founder & Director, House of Hiranandani.

Among the notable announcements for the real estate sector was the additional Rs 1.5 lakh deduction in income-tax on home loans up to Rs 3.5 lakh for affordable housing. This will drive the much-needed urgency in sales and bring the fence-sitters back into the market soon. In view of the housing shortage in the country and the objective ‘Housing for All by 2022’, the announcement of new reforms for rental housing will be a big boost to the sector. Currently high cost of houses and high property taxes lead to a low rate of return (ROR) from rental housing, making renting out an un-remunerative proposition. The new model tenancy is expected to balance the rights and responsibilities of both landlords and tenants that will make the rental market more efficient and streamlined across the country. Moreover, the use of government land parcels for public infrastructure and affordable housing shall further narrow the demand-supply gap. The decision to allow foreign institutional investors to subscribe to REITS and INVITs is also a welcome move,” he said.

While the government has taken several concrete measures, there is still a long way to go. We hope that the government looks into some of the key concerns raised by the industry and addresses the same soon, he added.

Source:
https://economictimes.indiatimes.com/markets/stocks/news/budget-boost-to-realty-tax-sop-on-home-loans-tax-holiday-for-affordable-housing-push-to-rental-housing/articleshow/70090246.cms