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Budget 2013: First time home buyers rejoice at additional tax deduction

K.R. Balasubramanyam     February 28, 2013
Finance Minister Palaniappan Chidambaram's message to developers is clear: price your products rationally if you want to draw first-time home buyers in large numbers.

He has granted an additional tax deduction of Rs 1 lakh on the interest paid to those buying a budget home (when the loan value is Rs 25 lakh or less) and doing so for the first time. There is a huge market out there for houses within this budget. And the finance minister has done well to remember that half of India's population is under the age of 25, and almost all of them could be first time home buyers.  He is not only betting on the aam admi, but also on young people earning mid to low incomes, who seek to own the roof over their heads.

The likes of Value and Budget Housing Corporation (led by Jaithirth Rao) have got a shot in their arm. They are already into the 'below Rs 25 lakh' segment of the home market. The Bangalore-headquartered Puravankara Projects has a separate subsidiary - Provident Housing - to build affordable homes.

"I wish the cap was Rs 35 lakh instead of Rs 25 lakh in view of the rising land prices in cities," says V.Madhu, Managing Director of Provident Housing.

The likes of Provident may not gain much from projects in cities such as Delhi, Mumbai, Bangalore or Chennai, but their projects in Tier II and Tier III towns will find new customers following the fresh concession. The finance minister could also have been sending a message to the real estate community to move away from the bigger cities.

However, the housing sector was also hoping for some more announcements which would have eased their difficulties in accessing bank funds for housing projects. To that extent, they are disappointed.

The Budget proposals may spur increased activity in the housing sector and keep the construction industry busy. There are 255 industries linked to the construction industry, which contributes five per cent to the gross domestic product. It is also the second largest employer after agriculture.

According to a McKinsy Global Institute study, at least 40 per cent of Indians will be living in cities by 2035, against the current 29 per cent. The announcement encouraging value housing,  may led to the birth of newer cities.

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