Budget 2016-17: Big boost for affordable homes..!

Budget 2016-1: Big boost for affordable homes..!

by Mr.G. KARTHIKEYAN, Chartered Accountant,  Coimbatore

The real estate sector is a major indicator of how an economy is faring and is also an employment generator, both in the organised and unorganised sectors. The Indian real estate sector has been showing signs of considerable slowdown over the past few years.

There were many expectations for the real estate sector from the Union Budget 2016.

One must, however, also remember that while the sector is controlled by the Union Government, it is the State’s laws rules and regulations that affect it more.

The Union Budget presented recently is seen as pro-poor and in keeping with that thrust, the strategy has been to make housing more affordable for the masses.

First time homebuyers will get an income tax benefit with an additional interest deduction of Rs. 50,000 per annum for loans up to Rs.35 kakh, provided the cost of the house does not exceed Rs. 50 lakh. This proves to a boon to first time homebuyers and offers substantial tax savings.

The Finance Minister has also provided for Service Tax exemption on construction of affordable houses of up to 30 sq. m in metropolitan cities and 60 sq. m (about 650 sq. ft) in other cities. This goes a long way in addressing the need for affordable housing in urban areas. The developer of such projects may also claim a 100% deduction on profits.

G. KARTHIKEYAN, Chartered Accountant, Coimbatore

However, this would apply only to projects approved between June 2016 and March 2019 and completed within three years. The built up area is defined to exclude common amenities / facilities but includes wall to wall, projections and balconies.

Considering that the scale of the project will be small, as each unit is limited in size, the medium to big players in the segment may not be attracted by this provision.

However, this could also lead to the entry of new players in the market who will be willing to cater to lower end segments.

Another positive fall out of the budgetary provisions is that REITs will no longer be subject to dividend distribution tax and this makes affordable housing a reality.

There are many avenues made available to monetise assets through REIT route for the immovable property owners such as theatres, complexes etc.

These avenues of REIT monetisation will gain momentum in the coming days. Relief has also been provided through an excise duty exemption on concrete mix.

This rationalises the tax system since till date only concrete manufactured at site was exempt and readymade concrete was not. 

As always, the devil is in the details and amongst all these boosters we really need to analyse what is doable and measurable and how much of the benefits will reach the intended recipients.

 While the area of construction has been defined as 30 sq. m in metros or / 60 sq. m elsewhere, this is for projects situated within corporation or / municipal limits as the case may be.

The residential unit has been defined as having separate facilities for cooking, living and sanitary requirements. 

Additionally, the time limit of three (3) years for the projects may turn out to be a little tight as typically, various approvals are handled by the States and local bodies and require considerable time.

Yet, one sees strong possibilities for growth in the real estate sector with housing becoming more affordable.

The objectives of the government as projected through the budgetary provisions for real estate are laudable. Only time will tell whether these objectives are achieved and if so, at what cost.

The writer Mr.G. KARTHIKEYAN is a Coimbatore-based Chartered Accountant.

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