Budget 2016: Key takeaways for real estate

real estate budget 2016

The Finance Minister Arun Jaitley’s third Union Budget for fiscal year 2016-2017 presented in Lok Sabha on 29th of February 2016 is being hailed by industry players as positive roadmaps for incremental growth of real estate sector that is virtually beleaguered owning to prolonged slowdown in the sales of inventories, and of course cash crunch.

There are two very significant features emerging from the current budget, and they are – concentrated focus on affordable housing programs through incentives, and rebate of additional Rs 50,000 on interest against the loans for the first time home buyers. These measures are construed to be quantum leap for transpiring real estate sector’s steady growth that is definitely not on its skyward trajectory over the last few years.

The proposed measures as introduced by FM Jaitley will, in all likelihood, revive the growth-crippled realty.

Tax incentives on affordable housing project:

The focus on materializing government’s ambitious affordable housing program to which proposal of 100% tax exemption from the profit of affordable housing is one key takeaway introduced in the budget. It signals much-needed helps for the builders to develop housing projects in affordable segments without sustaining the brunt of exorbitant construction tax, and they could be able to offer home buyers better accommodation under budget.

How is it helpful?

As a matter of fact – affordable housing program is one of the ambitious programs of NDA government in the context of boosting real estate sector to a rather significantly higher status, which quite unfortunately is plagued with long-hauled downturn. Even from the perspective of business viability, the proposal in the budget for incentive dedicated to affordable housing program means a lot for survival of realty today, considering the implementation of the proposal and subsequent result of greater thrust it will bring in realty.

An industrial expert who terms the union budget 2016 as balanced and growth-focused for realty says developers will feel incentivized owning to the proposed 100% tax-free construction of projects – 60 sqm for non-metro cities and 30 sqm proposed for metro cities. This is significant by the fact that housing stock will be created in much surge which is also the central focus of demand in real estate market.

Furthermore, the hundred percent tax exemption proposed will prove to be quantum leap in facilitating materialization of government’s ambitious ‘Housing for all by 2022’ program. We know that the real estate sector is largely dominated by home buyers from middle and lower income groups, who will be benefited by the proposal in the budget, considering they will not have to compromise on their readymade budget anymore when buying an affordable home. Meanwhile an industry player also voiced his opinion that the budget should have addressed giving realty sector an infrastructure status, a long-standing issue indeed.

Benefits for home buyers:

For any common home buyer the interest paid against home loan is one of the core issues in the course of buying a new home. Giving focus on the anguish of home buyers, the budget 2016 has introduced tax sops for the first time home buyers – a rebate of 50k on interest of loan up to Rs 35 lakh if the cost of home is less than Rs 50 lakh. Moreover, the budget has also rendered big relief to those living in rented accommodation as deduction of Rs 60000 HRA (home rent allowance) has been proposed in the budget under Section 80GG.

An expert says the rebate of Rs 50k will be beneficial for first time buyers in tier-III and tier-II cities. As a result of tax incentives for first time home buyers proposed in the budget, there is positive hope that housing demand and supply will go up, considering larger fraction of housing demand roots in affordable segment. Hence, real estate sector expects increased traction of growth.

On the other side of the coin, the cement industry will witness demand surge in days to come, as the budget has proposed construction of 85% road projects and construction of 50000 kms of state highways to be transitioned into national highways.

Conclusion:

The incentives and exemptions announced in the budget 2016 will in all likelihood incentivize growth of real estate creating incremental growth surge in the sector in days to come, along with fulfilling largely the dream of ‘housing for all by 2022’ program launched by Narendra Modi led NDA government in Centre.

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