Budget 2019: Building Fortunes - Middle-class sops spawn realty dream

Almost all the demands and expectations of the real estate industry, to assist not only the affordable housing segment but also the revival of the sector as a whole, was accommodated in the Interim Budget 2019-20. Furthermore, the Interim Budget also focuses on promoting purchase of second homes.

The reduction of Goods and Services Tax (GST) on homes outside affordable ambit is being looked at separately by the Union government through GST Council and Group of Ministers. A decision on the same is expected in the future GST Council meetings.

The Interim Budget has extended exemption from paying notional income on unsold inventory with developers for two years since completion of construction. This would ensure that high inventory level would incur lesser expenditure for the builder and giving them more time to sell the project, thereby increasing their margins. "Builders do not have to pay notional rent on unsold flats for two years after the year in which the construction is finished, which is a considerable step given the current scenario (of liquidity crunch and struggling industry)," said Amit Ruparel, Managing Director, Ruparel Realty.

According to Liases Foras data, the slowdown in the sector is evident by the fact that the ready inventory between 2014 and 2018 has increased 2.5 times. Sales in under construction properties have been declining in the past few years. While under construction properties attract 12% GST, no GST is charged on the ready ones. In addition, delay in execution and delivery has kept buyers away from under construction properties. The sales in ready properties has gone up from 11% to 27% during the same five year period.

"All this while, inventory tax seemed like a big hurdle for projects that haven't been complete yet since on one hand developers were finding it difficult to find takers for under construction properties, and on the other hand they had to comply to RERA norms and finish the project as per schedule. By giving exemption of another year, the government has given a big reprieve to developers who were facing hardships," explained Pankaj Kapoor, Managing Director, Liases Foras.

Secondly, "The deductions announced under Section 80IBA (of the Income Tax Act) have been extended to projects which will be registered by March 2020, this again paves way for new launches," said Sanjay Dutt, Managing Director & Chief Executive Officer, Tata Realty Limited.

Under Section 80IBA, the aim is to provide incentive to realtors and eventually give flip to affordable housing projects. The builders who are coming up with affordable housing projects will get tax deduction equal to 100% of profits and gains of such business from the gross total income, subject to certain conditions.

In another measure to give a push to the realty sector, the government has proposed an increase in capital gains up to Rs 2 crore into two residential homes from the existing one residential house. "This will ensure investments in the real estate sector," said Gaurav Gupta, Director, Omkar Realtors, as those individuals who have been selling their property with an intention to re-invest will now be able to roll their money over into two separate homes, thereby providing stimulus to increase residential sales. However, this exemption is allowed only once in the property owners life.

Similarly, the demand for opting for second home may further increase according to Surendra Hiranandani, Founder & Director, House of Hiranandani, as the government wants to do away with notional rent on second self-occupied home.

Hence, these two measures of not increasing capital gains up to Rs 2 crore into two homes would mean more individuals would contemplate on buying a second home as henceforth they will not have to pay notional rent on the second home, if occupied by oneself.

Lastly, by raising the threshold limit for Tax Deducted at Source from Rs 1,80,000 to Rs 2,40,000 for a professional or a tenant, the government in its Interim Budget has once again ensured that more investments by individuals flow into the residential segment. This extension of limit will also bring down compliance hassles among the mid and affordable segment tenants.

Overall, the government has acknowledge stress in the real estate sector and "the budget offers incentive to second property purchasers to boost sales. It also provides reprieve to developers from inventory tax burden," said Pankaj Kapoor, Managing Director, Liases Foras.

Despite a slew of the expectations that have been met with, Niranjan Hiranandani, Senior Vice President of industry body Assocham, is of the opinion there are some areas where relief has not come through the budget.

According to him, "Liquidity is an issue in the economy and in the real estate sector too. We expect the government to address the concern to make all these reforms effective to ensure ease-of-doing the business and ease-of-living."

Thereby, providing them relief on multiple counts, the government just a couple of months before elections has once again tried to defibrillate the housing sector.