BUDGET 2016-17: IS THE GOVERNMENT FULFILLING ITS PROMISE TO THE COMMON MAN FOR AFFORDABLE HOUSING?

1. Union Budget 2016The union budget 2016-17 focused highly on development of rural, social sectors and infrastructure. It focused more on BPL population, ignoring the middle-income groups, who are the main tax payers of the country.

Sugee Team believes that Budget could have done a lot more for the real estate sector. However, there are some positives. The Budget has increased the limit of deduction of rent paid under section 80GG from ₹ 24,000 per annum to ₹ 60,000, to provide relief to those who live in rented houses and do not get HRA as a component of their salaries.

One of the positive announcements for Real Estate Developers is scrapping of the Dividend Distribution Tax (DDT) on Real Estate Investment Trusts (REITs). This would help developers raise funds, as this makes investment attractive for investors. With the net ROI increasing we may see more investors flocking to REITs and many more REITs been floated.

The Finance Minister, Shri. Arun Jaitley, has furthermore proposed an additional ₹ 50,000 deduction on loan interest for first home buyers, where the value of the house is not more than ₹ 50 Lakh; and 100 percent deduction for profit on development of affordable housing, besides exempting REIT’s from dividend distribution tax. This move will result in improved home buying sentiments in smaller cities with lower housing cost.

However, this deduction is not sufficient to increase the sentiment for first-time home buyers in Metros like Mumbai, where housing prices are exceedingly high and such an exemption makes no difference in the burden on home buyers.

To promote affordable housing, the Finance Minister has announced a 100% deduction, by way of incentive to real estate developers, on profit from sale of flats up to 30 square metres in the 4 metros and 60 square metres in other cities. The Finance Minister has also proposed an exemption from service tax on the construction of houses under the affordable housing scheme, this will reduce the total cost of ownership for the new buyer for affordable homes. This demonstrates a resolve on the part of the Government to ensure that ‘Housing for All by 2022’ becomes a reality.

The Budget proposes to give a boost to the lower half of the pyramid and also looks to address one of the major concerns of the sector which is the availability of low-cost funds.