The government continued its focus on low-cost housing and gave the sector ‘infrastructure' status in Budget 2017.
Finance Minister Arun Jaitley, in his Budget 2017 speech, allocated Rs 23,000 crore to the Pradhan Mantri Gramin Awas Yojana. Jaitley set a target of building one crore houses by 2019. The scheme was introduced in 2015.
We propose to complete one crore houses by 2019 for the houseless and those living in ‘kuccha' houses. I have stepped up the allocation for the Pradhan Mantri Gramin Awas Yojana from Rs 15,000 crore last year to Rs 23,000 croreFinance Minister Arun Jaitley
The government also proposed extending the tenure of loans under the Credit Linked Subsidy Scheme of the PMAY to 20 years from 15 years previously. The Union Cabinet has already given an ex-facto approval to the proposal, according to the Press Information Bureau.
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Jaitley said the National Housing Bank will refinance individual loans worth Rs 20,000 crore in the upcoming financial year.
PMAY, also called the ‘Housing for All' scheme, aimed to build 2 crore houses by 2022. It provided for an upfront subsidy for low-cost housing along with an interest rate subsidy for loans up to Rs 6 lakh. The Prime Minister Modi extended these benefits in his New Year's eve address to the nation. Loans up to Rs 9 lakh will receive an interest subvention of 4 percent while those up to Rs 12 lakh will be eligible for a 3 percent reduction in applicable interest rates.
Abhishek Goenka of PricewaterhouseCooper said the the infrastructure tag will improve participation from the private sector.
Infrastructure status to this segment (affordable housing) could result in an increased participation of private players.Abhishek Goenka, Partner-Real Estate Tax, PwC
It will also help developers get credit under priority lending, according to Anshuman Magazine of CBRE Group
...this is indeed an important step to promote access to priority lending thereby spurring supply of low cost housing units across various cities in India.Anshuman Magazine, Chairman, India and South East Asia, CBRE
More Tax Benefits For Affordable Housing
A 100 percent deduction for profits was announced in the previous budget for undertaking low-cost housing projects. Budget 2017 extended the benefit to developers by tweaking the area requirements to qualify as affordable housing.
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From the next year, Jaitley announced that for affordable housing, the carpet area will be counted rather than the built-up area, which includes the thickness of outer walls and the balcony.
As a result, the size of houses qualified under affordable housing will go up too. Previously, flats with built-up area up to 30 square metres in metro cities, and 60 square metres in other cities were considered under affordable housing. From now on, a carpet area of 30 square metres in metros and 60 square metres in other cities will be applicable.
The benefits from the proposals in Budget 2017 towards boosting the housing market will also trickle down to other sectors, said Deepak Parekh, chairman of Housing Development Finance Corporation Ltd.
Housing has a multiplier effect on a number of industries, particularly steel, cement and others. He has termed housing sector an infrastructure status, which gives multiple benefits to housing companies. You can increase the borrowing limit for single parties and group companies by 5 percent, the insurance companies must invest 5 percent of their funds in infrastructure -- now it includes housing . EPFO, provident fund needs to invest in infrastructure, which also includes housing. So he has given a number of changes and improvements to kick-start the housing sector in urban India.Deepak Parekh, Chairman, HDFC Ltd.
Jaitley also proposed changes in the long-term capital gains tax provisions with respect to land and buildings. The holding period for profit from immovable property to be considered long term has been reduced to two years from three. This move will give an additional impetus to the resale market, according to Anil Kothuri, President and Head of Edelweiss Retail Finance.
The base year for indexation of these long-term holdings was also revised to April 2001 from April 1981 previously.
Another grey area which the budget clarified was of the liability to pay capital gains tax for Joint Development Agreement projects signed between landowners and developers. Jaitley said that the liability to pay tax will arise only in the year the project is completed.
This will be a positive for the realty developers, said Ashish Purvankara, managing director of real estate developer Purvankara Ltd.
Payment of capital gains by landlord on Joint Development agreements in the year of completion is a welcome move. This will enable real estate companies to pursue development without further infusion of capital in the acquisition.Ashish Purvankara, Managing Director, Purvankara Ltd.
Magazine added that the budget has done well to keep in mind the concerns of developers in the sector.
The government has also been accommodative of the concerns of the real estate sector. The relaxation on long-term capital gains, joint development agreements, tax rebates for builders will help reduce their tax liability.Anshuman Magazine, Chairman – India and South East Asia CBRE
Headwinds Remain
The government's enthusiasm for low-cost housing has not translated into actual growth for the real estate sector yet, and the demonetisation drive only added to its woes.
Even though banks cut their home loan interest rates ranging from 70-90 basis points, sales in the residential housing market fell 44 percent in October-December, according to Knight Frank India (a basis point is one hundredth of a percentage point).
The target set under PMAY may seem far-fetched as of now. According to data provided by the Ministry of Housing and Poverty Alleviation in a written reply to Parliament in November, between 2014 and 2016, about 12 lakh houses were covered under the scheme at various stages of implementation. This is just 6 percent of the overall target of two crore houses by 2022.
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