Finance and Investments  |  06 Feb 2017

With many new bold initiatives taken by the Central Government on this Union Budget, the real estate industry has many reasons to cheer. As a major relief to low-income groups, almost every decision impacting real estate was related to affordable housing. This in-turn will help realty developers access funds at lower rates and would also open up additional avenues to raise funds. Here are the salient points of this year’s budget, which will directly impact the property market:

Housing

  • Affordable housing getting an infrastructure status
  • Carpet Area and not built up area will be considered as a size parameter. The basic size remains 30-60 sq. meters.
  • Builders will now be given 5 years to complete a project under affordable housing

Finance

  • The National Housing Bank will refinance individual home loans of about Rs. 20,000 crore
  • A ban on cash transactions above Rs. 3 lakhs

Tax

  • The time span for relief in capital gains tax arising on sale of a property has been reduced from 3 years to 2 years
  • The notional tax on unsold but ready inventory should be charged only after 1 year. The land holder in any real estate project has to pay tax on the gains only once the project is complete.

The infrastructure status provided to affordable housing is expected to improve resource allocation for affordable housing. The move will definitely enhance the housing supply, thereby reducing the demand backlog. This will act as a strong response to the weak sales and high unsold inventory faced by the sector in 2016, triggered by demonetisation.

Additionally, easy and dedicated access to institutional financing, higher limit on external commercial borrowings will attract more investments and assure sustained growth of the sector. Long-term financing at lower rates will reduce costs of construction for developers, allowing them to pass on the benefits to the customers. Simultaneously, if buyers get funds at cheaper rates, they will create more demand in the sector.

Overall, the reforms seem to bring more clarity for those who have been eyeing on a new home and the industry is likely to see a steady growth in the near future.

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