Realty: Affordable is 'unaffordable'

Affordable housing sector that received a big boost in the Union Budget in the form of personal tax exemption is in for a big shock.

The Budget has made it mandatory for developers to ensure that each flat sold in their projects marked for affordable housing is within Rs 45 lakh. If even one flat is sold above the threshold, they will lose the 35% income-tax benefit they enjoy on the affordable housing project.

This fine print in the Budget has put the builders in a fix whether to develop the affordable housing projects under the Pradhan Mantri Awas Yojana (PMAY) or not.

A section of the builders who are into affordable housing projects view the latest rider in claiming income tax benefit under section 80-IBA as "stringent". They say it may not be easy and feasible for them to comply with the stipulation when the project is nearing completion.

Anil Harish, an expert on tax laws, said realtors developing small-sized houses need to keep the value of the flat up to Rs 45 lakh and the size of the apartment within 60 square metres of carpet area.

"If the flat valuation exceeds Rs 45 lakh, the developers will not be entitled to a 35% tax benefit against the total profit accrued from the affordable housing project under the Income Tax Act," said Harish from DM Harish & Co.

"Not only this Rs 45 lakh cap has been introduced, but the carpet area eligible under 80-IBA has also been doubled to 60 sq metres from 30 sq metres," said Neeraj Sharma, director, Grant Thornton Advisory Pvt Ltd.

Prior to Budget 2019, there was no price limit to claim this I-T benefit. The pre-condition was that the carpet area of the residential unit should not be over 30 sq metres if the project is located in metro cities or 60 sq metres if it is in non-metro locations. Secondly, the affordable project must be on a plot measuring not less than 1,000 sq metres for metro areas and 2,000 sq metres for non-metro areas.

To undertake and complete the sale of any housing project, the time required to market it is three to five years. Post completion of the project, developers usually tend to increase the price of an apartment by a few lakhs of rupees to recover overhead costs and interests they have been paying to service debt.

Moreover, GST is not applicable for a completed project, as a result, the developer includes 1% GST within the flat cost, thereby increasing the flat price. In such a scenario too, the realtor has to now ensure that the price doesn't exceed Rs 45 lakh.

However, the authorities are yet to make a clarification with regards to what all is included in this Rs 45 lakh. "Is this Rs 45 lakh all-inclusive of stamp duty and other charges levied or only the basic flat price is something that the government has to clarify," said Sharma.

Pankaj Kapoor, founder and managing director, Liases Foras, a real estate consultancy, said, "There are ways to ensure all the flats sold are within this Rs 45 lakh limit. If one's margin has factored this 35% income tax benefit, the individual or firm will find a way out to get this benefit. With margins being lower in affordable housing projects, those having better strategy and medium to bigger projects will gain the most."

The real estate industry isn't pleased with this announcement within the Budget.

Manohar Shroff, vice-president of Maharashtra Chamber of Housing Industry (Navi Mumbai), said on the one hand government promotes the affordable housing scheme, but on the other, they lay down tough guidelines that are difficult to fulfill. He said the government needs to amend its rule only then the developers will be able to take up projects under PMAY. "There is a huge demand for affordable homes, but this strict norm will deter the developers from taking it up under PMAY," said Shroff.

Niranjan Hiranandani, chairman of Hiranandani Group, said, "The government must be supportive of developers to construct affordable houses. The anti-development norms in development should be removed. If the government is supportive, then the developers can construct as many as affordable and small-sized houses."