Benefit for only low-cost housing

Players not impressed, say big cities have already crossed that limit

Real estate companies are unenthused with the Budget where the finance minister proposed, among other things, that a person taking his first home loan for an amount up to Rs 25 lakh will get an additional deduction of interest of up to Rs 1 lakh.

Developers said though it would help borrowers in smaller cities and those who would get their homes built, it is unlikely to help real estate companies as they operate in higher price brackets and in big cities and metros. In cities such as Mumbai, the price of a two bedroom apartment has crossed Rs 1 crore.

"There are hardly any developers who operate in this space. You do not get low cost housing projects in Gurgaon or Mumbai. The Budget proposal will mostly benefit people who construct their own houses," said R Nagaraju, vice-president, corporate planning at realty major Unitech.

"This proposal will mostly help developers in low-cost housing," said J C Sharma, managing director at Bangalore-based Sobha Developers. Analysts pointed to companies such as Puravankara and Tata Housing who have low-cost housing projects.

"The proposal will be psychologically positive for home buyers than anything else," said A K Prabhakar, senior vice president, equity research, Anand Rathi Financial Services.

According to Unitech's Nagaraju, the proposal to reduce service tax abatement for apartments or homes with a carpet area of 2000 sq ft or more or of a value of Rs 1 crore or more from 75 per cent to 70 per cent will not impact the buying decision of people.

"It will push up home prices by just 0.5 per cent. So if you are buying a home of Rs 1 crore, the cost will go up by Rs 50,000. I do not think it will make any difference," said Nagaraju of Unitech.

Developers are disappointed with the one per cent tax deducted at source (TDS) on the value of land transacted. The finance Bill says the buyer should cut the TDS while paying the value of the property to the seller.

"The realty sector is highly disappointed with the decision to levy TDS on property transactions beyond Rs 50 lakh. This decision is likely to create a recession in an already slumped market," said R K Arora, CMD of NCR-based developer Supertech.

Sobha's Sharma says it will lead to more paperwork for realty companies as they have to work out structures for the TDS transactions.