Budget dissapoints realty sector players

The woes of Indian real estate sector are expected to continue, post the Budget. Demand for fresh dwelling units is expected to remain weak and since no new incentives have been given for developers or new buyers, experts feel a revival, which was depending upon government action, is now far away.

The industry was expecting re-introduction of section 80-IB of the Income Tax Act, that allows 100 per cent deduction of profit earned from building smaller houses — 1,000 sq.ft in Delhi and Mumbai and 1,500 sq.ft in other places. The clause was withdrawn in 2007. These dwelling units are termed affordable houses. In addition, the government did not increase the exemption limit of Rs 150,000 for interest payment on home loans under Section 24 of the Income tax Act.

Since the profit margin in smaller houses with smaller unit areas is very low, builders were focusing on larger houses. The government has not given any incentive for providing affordable housing, said the CEO of a leading real estate company. In addition, since they did not increase the exemption limit for interest payment, industry is unlikely to witness any fresh demand, he added. “The demand in the real estate sector depends on the disposable income that people have with them. The cost of interest is so high that a lot of customers are not able to buy homes. We needed this exemption to boost the demand in the housing sector,” said Naveen Raheja, CMD, Raheja Developers.

Though the government is pushing developers to come up with affordable housing projects to provide homes to the low and mid income groups, the Union Budget didn’t give any push in this regard. “Developers were trying to hold up their prices, as they were expecting incentives from the government for affordable housing projects. Now they may find it difficult to come up with projects where the profit margins are less then 20 per cent”, said Rupesh Sankhe, equity analyst, Centrum Broking.

“We were expecting this clause (80-1B)to be re-introduced, as low cost housing projects have negligible profit. As a developer, we need some incentive to come up with such homes in the metros, where the cost of land is very high”, said Sunil Malhotra, vice president-finance, Omaxe Ltd.