Jaitley makes big bang affordable housing announcements

Affordable housing to be given infra status; LTCG tax on immovable property to be levied after 2 yrs

Giving a massive push to affordable housing sector finance minister Arun Jaitley in the budget finally gave the segment much needed relief and granted infrastructure status to affordable housing. The industry had been for long asking for these changes. 

According to industry experts as well as officials in the Urban Development ministry the new measures would not only push more developers to enter the affordable housing segment, the cost of development would massively reduced for developers. 

Also with tax benefits the government is offering, post demonetisation real estate prices reaching reasonable levels, would all help in attracting new home buyers and end users. 

“Granting infrastructure status to affordable housing will provide a boost in volume of construction activity across the country. A good boost to the construction industry that was struggling with reduced number of product launches in real estate in the last couple of years,” said Joe Verghese, Managing Director, Colliers International India.

He added that capital gains on JDA to be taxed only at product launch, one-year tax exemption from notional rental income from unsold inventory and reduction of long term capital gains tax period from three to two years would provide respite to investors and developers of real estate. 

Most of the measures taken in the budget have been in line with Prime Minister Narendra Modi’s plan to provide 20 million houses across India by 2020. Experts also said that difficulties in claiming incentive for affordable housing have been removed with moving the goal post from built up area to carpet area and completion period enhanced to five years.  

“Reduction of period of holding to two years to enjoy long term gains rate as well as more avenues to save capital gains tax have been proposed. The litigation around joint development agreements may become history with clarity on timing of taxation at project completion,” Anish Sanghvi, Partner, PwC India said.

According to experts, the government would need to define affordable housing or low-cost housing clearly. Also one of the key demands of the real estate sector has been to get industry status to get preferential and lower borrowing rates from banks. 

“Housing demand (absorption) across key cities had already declined by 31% largely on uncertainty post demonetisation, which led to very few transactions materialising in both primary and secondary market in Oct-Dec 2016,” Samir Jasuja, Founder and CEO of PropEquity.

National Housing Bank will refinance indiviual loans worth Rs 20,000 crore in 2017-18.

Another key announcement to boost affordable projects is that instead of built-up area, carpet area will be counted for affordable housing of 30 (Metro) and 60 (rest of India)  square meter, which will broadly increase housing sizes by 30%. This will generate interest from developers who were earlier reluctant to launch projects in this segment due to smaller sizes.

“Lastly, 100 per cent deduction for profits to an undertaking in affordable housing projects needs to be now completed in five years instead of earlier three years will provide enough time to complete projects in time to get the benefit,” Jasuja added.