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Budget 2019: What Interim Budget did for the housing sector and home buyers
Financial Express  |  June 10, 2019

Sunil Dhawan

With the cost of funds of banks coming down, a fall in the lending rate should be imminent. However, it remains to be seen if the banks would actually cut their lending rates after doing any revision in their deposit rates. Bank of Maharashtra, in fact, is the only bank so far to have cut the benchmark one-year MCLR by 0.10 per cent to 8.60 per cent after the June 6 RBI rate cut.


Also, with the NBFC crisis looming large, the Budget 2019 will also be closely tracked in terms of liquidity concerns in the housing market. Along with banks, the housing finance companies also play an important role in providing finance to the home buyers. “Though the monetary policy was on expected lines, markets expected RBI to take some concrete steps to address the NBFC crisis after a leading Housing Finance Company was downgraded to default recently. However, the lack of any mention of the NBFC crisis in the policy statement gave rise to fears that the crisis may deepen further before the authorities act,” says Alok Agarwala &ndash Head Research & Advisory, Bajaj Capital.


If the recent RBI statement is closely looked into, for those looking to buy home, this probably could be the right time. The probability of interest rates to go up in the medium term looks weak. “Concerned with the weakening growth, the RBI has taken a very appropriate step by changing the stance from neutral to accommodative which means no risk of rate hike in subsequent months.  This will be a big support to improve the demand as well as to revive the private sector investment. The Reduction in Repo rate by 25bps will also boost overall sentiments and also some reduction in EMI of loans,” says Deo Shankar Tripathi, MD & CEO, Aadhar Housing Finance Ltd.


With RERA and GST on homes more or less on a better footing than before and the Prime Minister’s ‘Hosing for All’ initiative on the radar, its widely expected that the Budget 2019 will provide more incentives for the real estate sector.


Surendra Hiranandani, Founder and Director, House of Hiranandani is expecting this from the new government, “The real estate sector was in the news in the last couple of years, with the government announcing several major policy initiatives like demonetization, RERA, GST etc which changed the entire landscape of the industry and made it buyer friendly.


Housing remains the top priority for every Indian regardless of their income levels, education or any other possible factor and we believe that a stable government at the centre in 2019 will further boost the growth in the sector. We hope that the new government demonstrates concrete action to push investments, increase growth and generate employment.”


However, Hiranandani also has a specific expectation on the operational front. “We expect that the new government can do away with unnecessary documentation which will help real estate players immensely. It is important that single window clearance is soon put into practice which will not only resolve operational issues prevalent in the industry but would improve the productivity of the real estate industry. Currently, the permissions are coming at a snail’s pace. Private sector participation in housing is necessary to bridge the gap between demand and supply and for that it is desirable to create a policy framework to minimise and simplify approvals required for the development of a real estate project.”


According to an EY Tax Alert, here is what the Interim Budget presented in February 2019 had in store for the real estate sector:


·        Earlier, developers of real estate property got relief against notional annual value taxation in respect of unsold inventory held as stock-in-trade for one year from the end of the financial year in which completion certificate is obtained from the competent authority. With a view to further promote the real estate sector, the relief from the notional annual value in respect of unsold inventory was extended to two years from the financial year 2018-19.


·        From the financial year 2018-19, EY says that while one more self-occupied house property can now be eligible for nil annual value, taxpayers would do well to compare such tax benefit with consequential loss of interest deduction and exercise the option only where it optimizes the tax benefit.


·        EY also cautions about the long term capital gain roll over benefit for two houses is a once-in-a-lifetime optional benefit and, hence, it should be exercised with caution.


·        The extension of time limit for approval of affordable housing projects for profit-linked deduction and extended time limit of two years for availing nil annual value on unsold/vacant real estate will be beneficial to real estate developers which will provide a fillip to the industry to offer better prices to the consumers


Currently, 100% deduction of profits and gains is available if such profits and gains are derived by an undertaking from the business of developing and building affordable housing projects upon fulfilment of certain conditions. One of the conditions is that the housing project should be approved by the competent authority between 1 June 2016 to 31 March 2019. With a view to augment the supply of affordable houses, the time limit for obtaining approval was extended from 31 March 2019 to 31 March 2020.