Buying low-cost houses made easier- Business News
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Buying low-cost houses made easier

Additional tax sops for loans above Rs 35 lakh and tax rejigs make owning a house a little less costly.

  • March 15, 2016  
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Pankaj Kapoor, Managing Director, Liases Foras Real Estate Rating & Research

One of the major areas of focus in the Budget was "affordable housing". Some of the proposals by the finance minister are:

1.100 per cent deduction on profits to developers opting for flats up to 30 sq. metres in Chennai, Delhi, Kolkata or Mumbai and 60 sq. metres in other cities, approved between June 2016 and March 2019 and completed in three years. MAT (minimum alternate tax) will still be applicable.

2. Service tax exemption on construction of affordable houses up to 60 square metres.

Effect on Realty: The supply of flats up to 30 sq metres in Chennai, Delhi, Kolkata and Mumbai is only around 9,000 units, led by MMR (Mumbai Metropolitan Region) and NCR (National Capital Region), while the supply of flats up to 60 sq. mt in 23 cities in India except the above is 163,722 units, only 25 per cent of the total supply.

Thus, this reform is not likely to have far-reaching effects. However, Pune is likely to benefit from the service tax exemption for houses up to 60 sq mt, since the demand for one BHK and compact two BHK houses is high there. On the other hand, developers in Kolkata will not benefit much from the move on 100 per cent deduction on profi t for fl ats up to 30 sq. metres, as the migrant population in the city is very low and there is muted demand for compact one-BHK and studio apartments.

3. Distribution out of income of SPV to REITs and INVITs having specified shareholding will not be subjected to Dividend Distribution Tax.

Effect on Realty: There has not been a single REIT listing in India because of the ambiguity over DDT. Now, REITs will be able to realise their full potential.

4. Deduction for additional interest of Rs 50,000 per annum for loans up to Rs 35 lakh sanctioned in 2016/17 for first-time home buyers where house cost does not exceed Rs 50 lakh.

Effect on Realty: First, the amount of interest exemption has been increased to Rs 2,50,000, and second, the upper cost limit has been increased to Rs 50 lakh. So, a larger number of fence sitters will be encouraged to buy homes.

5. Budget has increased the timeline for construction from three years to five years under Section 24 for claiming deduction.

Effect on Realty: It is positive for buyers as, with a realistic completion timeline, they can be hopeful of availing of full tax exemption.

6. Extension of excise duty exemption, currently available to Concrete Mix manufactured at site for use in construction work, to Ready Mix Concrete.

Effect on Realty: This will have a positive bearing on logistics. An upgraded road infrastructure will facilitate faster transfer of raw materials and thus reduce construction delays. On the other hand, extension of excise duty exemption to Ready Mix Concrete will lead to increased production and lower input costs.

7.The government will re-launch its national land record digitisation scheme and fund it with Rs 150 crore.

Effect on Realty: Once records are digitised and proper linkages are established between registration, property taxes and titular records, chances of fraud and scams will be less.

This is in line with the Torrens system of land titling and will enhance accountability and transparency.

Written by Pankaj Kapoor, Managing Director, Liases Foras Real Estate Rating & Research