EXPLAINED | Will expected cuts in tax slabs lead to more home-buying in FY24?

Tax cuts may generate disposable income, but they may not ultimately lead to more house sales. Real estate experts feel that even as disposable income is likely to be generated under the new tax regime, it will be a matter of time before one discovers if that money will lead to house-buying.

“Changes in the income tax slabs, including an exemption for income up to Rs 7 lakh under the new tax regime and the new tax slabs will doubtlessly benefit the middle class. However, whether the housing sector will get a collateral boost remains to be seen. The new tax regime offers no benefits that taxpayers can avail of under any Section, including Section 80C - the previous home loan tax benefits,” Anuj Puri, Chairman, Anarock group told Business Today.

Amit Modi, President Credai (WUP) adds: “The new tax cuts may create disposable income but whether it will lead to an impetus in home buying is yet to be seen because savings doesn’t usually go beyond Rs15,000k-Rs 30,000 for a household in the middle-income bracket and in the new tax regime you cannot take 80c benefits.”

Push for affordable housing

The government has increased the allocation for Pradhan Mantri Awas Yojna by 66 per cent to about Rs 79,000 crore. 

“The increase in outlay will go a long way in bridging the gap between demand and stock in affordable housing. This will provide opportunities for associated stakeholders such as construction companies and contractors,” Puri said.

As per research shared by Anarock, out of total 3.58 lakh units launched in the top 7 cities in 2022, affordable housing accounted for 20 per cent. In 2018, the segment had a 40 per cent share of around 1.95 lakh units launched that year, indicating a sharp plunge. 

However, some also believe that overall tweaks introduced in the budget will ultimately reflect on the growth of real estate. 

Ashwani Kumar, Pyramid Infratech adds, “The expansion of PM Awas Yojana Funds by 66 per cent to 79,000 crore will prove to be a successive step in accomplishing the government’s mission to achieve Housing For All. This will replenish the affordable housing demand across the country and fulfill the home-buying aspirations of medium-class buyers. The emphasis on infrastructural boost, road and airport connectivity, sound urban planning, and raising the capital expenditure to expedite the completion of 100 critical infrastructural projects will bring forth a boom in the real estate sector and lead to an optimistic rise in residential housing demand.”

Urban planning and real estate Navin M Raheja, Chairman, and Managing Director (CMD) Raheja Developers however believes that the budget has nudged the states and cities to take up urban planning and it could lead to planned development and overall growth in realty. 

“We expect this to lead to planned real estate development in the country. It will also improve living standards in cities and provide developers with an opportunity to provide better homes,” Raheja adds.

"With an annual allotment of Rs 10,000 crore towards Urban Infrastructure Development Fund, real estate growth in Tier II and III cities of the country is expected to pick up pace. The much-awaited direct tax benefits and changes to the income tax slabs are likely to put more money in the hands of middle-class households, positively impacting spending capacity and savings. This should bode well for the residential segment, especially affordable housing,” Anurag Mathur, CEO, Savills India, says.Overall drive for consumption Madhavi Arora, Lead Economist - Emkay Global Financial Services explains: “The tax benefits have been tweaked to encourage individuals to move towards new tax regime, and to provide relief to the middle class, while the maximum marginal rate has also been reduced to 39 per cent from 42.7 per cent to give relief to the highest income strata. While the government is foregoing effective revenue of Rs 350 bn, this could have a consumption multiplier effect albeit at the margin, in the economy that’s seeing fading consumption growth.”