Will budget 2016 help Real Estate in India to recover?

PropertyCrow.com tries to find out the impact the new budget is likely to have on Indian real estate in the coming financial year and answer this million dollar question in the process.

29^th , the last day of the leap year February of 2016 is a day many people from all walks of life are eagerly awaiting for.  It is a leap of faith in the literal sense as almost all industry verticals are hoping that key decisions taken during this budget will have positive impacts on their respective industries. The real estate sector is no different as it looks hopingly that things will turn around for the better in the coming days and months.

Prime Expectations

The major expectations from the Union Budget include service tax restructure relaxation, an industry status to the real estate sector, home loan rates, etc. There have been certain indications from the markets currently that suggest that there is a momentum swing in favour of the real estate industry in the past 3-4 months.

One silver lining is the fact that the commercial real estate in India has seen a big boost right in the office space and also in the warehousing industry. The residential realty space might just see a rub on effect due to the commercial property segment pushing forward positively.

The start-up push seems to be working

The Make in India campaign and the start-up push by the Modi Government has seen a lot of good response from all the quarters of the country and across the globe. There have been billions of dollars that have been pledged to many states of India from some of the biggest international and domestic business houses. These steps have certainly infused a lot of confidence in the business industry across all sectors and the average businessman today is far more comfortable to act on his ideas.

The real estate sector will definitely see more action as more and businesses set up shop, expand existing businesses, seek more space and hire more employees. More job creations will boost the residential housing sales also and the domino effect is already creating a lot of ripples so expecting more is not unwarranted. The sense of goodwill that this grand exercise has created is indeed palpable and it would be just a matter of time before it translates into solid business for all concerned.

Many property and real state pundits are pinning their hopes on the fact that Finance Minister Arun Jaitley through his Union Budget announcements on Feb 29 will usher in a golden period for property buyers, sellers and mainly the real estate developers who have been under the weather for many a month.

Major hurdles to overcome

Before understanding the solutions that would come vide the Union Budget 2016-17, it is imperative to understand what exactly the factors exist on which realty experts and the property buyers are once again pinning high hopes from the government.

The property sector smarting under huge and multiple pressures since almost three years needs a breather and fast. There has to be a genuine and strong impetus towards project approvals, taxation policies, granting industry status to the real estate fraternity, construction support, labour laws and many more.

As the new government gets a better grip of the ground realities, it is highly expected that this budget will cater to the requirements that the real estate market has been yearning for and really deliver it out of a significantly long and stagnant patch.

There has never been a dearth in the number of home buyers in India simply because of our huge population. The only issue is the mismatch in the budgets and that has caused many real buyers to be fence sitters for the past many years. A real intent shown by the Government by their actions and policies could definitely get these tentative buyers to swing into action and in turn set the markets into a positive motion.

GST Bill – Game Changer

This bill has been in the spotlight for quite a long time now and many analysts believe that the GST Bill, if it goes through during this budget, could be a real game changer. The reason to believe so is simple as the GST can take the place of various taxes including service tax, VAT, etc when purchasing flats and properties.

As the situation stands today, property purchasers have to pay a range of taxes when they buy under-construction properties. Over and above Stamp Duty and Registration Charges, the buyers also have to pay taxes that include Service Tax, VAT, Excise Duty, Custom Duty, etc.

The pain point is the combination of all these levied taxes that constitute close to almost 22-23% of the total property cost thereby discouraging buyers big time. If the focus is on affordable housing and delivering housing and shelter for one and everyone, the Goods and Service Tax Bill going through in the Rajya Sabha can have a humongous and profound effect.

Tax benefits for buyers – a must for the survival of real estate

The increase in deduction limit on the interest component of home loans is one factor that could turn the tide and lead to a renewed interest in the housing sector. As on today, when a buyer buys an under-construction property, he or she is able to claim tax benefits of INR two Lakhs post the property is delivered only if the construction is completed in 3 years of time.

The irony is that the tax benefits of INR two Lakhs come down to a meager INR Thirty Thousand in case the real estate developer fails to deliver and the project is delayed further. So such property buyers face a double penalty – on one hand they have to shell out a higher interest component and on the other probably pay more rent on their rental accommodations.

If a home buyer starts paying interest from day one when he or she takes a home loan then allowing the home buyer tax benefit from day one in an under construction purchase scenario would highly encourage buyers to go in for new properties and also bolster the home loan market overall.

The same measure in the case of an under-construction purchase done from the view point of saving the capital gains tax can help the real estate market. As of today the benefit can be availed only if the under construction project is delivered within 3 years and any delay by the property developer results in a loss for the one who has booked the property. If resolved this could go a long way in propelling the market forward.

Multiple clearances – the eternal hurdle

Ask any real estate developer and this one issue will be singled as the prime and the most prominent hurdle in completing projects on time. If the Union Budget can resolve and tackle this issue and bring all construction permissions under a single window clearance, a major chink of all the problems faced by the real estate industry would vanish on their own since these problems trickle down from the huge number of property developers to the millions of home buyers effecting the entire real estate ecosystem.

Indeed the budget holds the key to many doors and can be the answer to many, if not all, questions plaguing the real estate sector in India today.