The government on Friday allowed a rebate on taxable income between Rs 2.5 lakh to Rs 5 lakh per annum in the interim Budget for 2019-20 (FY20). Experts believe this might boost the prime minister’s housing for all initiative, as it would provide additional disposable income to potential buyers of affordable homes.
The size of the real estate sector in the country is $200 billion.
Around 15.3 million houses have been constructed under the Pradhan Mantri Awas Yojana (PMAY). “From 2014 to 2018, 15.3 million houses have been built under the PMAY,” Finance Minister Piyush Goyal said in his Budget speech.
The flagship scheme has received an allocation of Rs 25,853 crore in the Budget for FY20, compared to Rs 26,405 crore in FY19 — a decrease of almost 2 per cent.
“The reason for the decline is that most of the development in the PMAY now would be organic, based on private players providing affordable housing. However, the allocation is enough for the government to go ahead with its own plans,” said a senior official in the urban development ministry.
Industry experts believe the rebate could help increase disposable income of homebuyers. If a person earns Rs 6.5 lakh per annum and takes 80 C benefits of Rs 1.5 lakh, he would be in the tax-free category. With Rs 5 lakh annual taxable income, he should be able to garner a loan of Rs 18-20 lakh for 20 years at current rates of interest of 8-9 per cent (appoximate annual equated monthly instalment of Rs 20,000).
“The rebate along with the increased standard deduction will translate into improved income for affordable homes. This will increase demand for the sector,” said Shishir Baijal, chairman and managing director, Knight Frank India.
Launches will increase
According to ANAROCK Property Consultants, the affordable price segment has dominated the residential units’ supply. Recent launch trends show that demand for affordable housing with ticket sizes in the range from Rs 5 lakh to Rs 40 lakh is growing.
Industry experts believe over the next year close to 150 affordable housing projects might be rolled out.
At present there are close to 100 affordable housing projects that are in various stages of completion. Developers are already anticipating a slew of new launches.
“It will pave the way for new launches in affordable housing,” said Sanjay Dutt, managing director and chief executive officer at Tata Realty.
Tenants to homeowners?
Experts believe the threshold for the tax deducted at source (TDS) for rent is proposed to be increased from Rs 1.8 lakh to Rs 2.4 lakh to provide relief to small taxpayers, and might push sales of affordable houses.
“There will now be no tax on house rents up to Rs 2.4 lakh from the previous limit of Rs 1.8 lakh. This can attract more investors to buy second homes for earning rental income. The rollover of capital gains tax on sale of houses has been increased from one to two houses. This is a good move to incentivise genuine homebuyers and investors to buy new properties,” said Anuj Puri, chairman, ANAROCK Property Consultants.
Relief on unsold inventory
This is expected to give big relief to developers as the country’s top 27 listed realty companies had unsold inventory worth Rs 1.13 trillion, up 21 per cent from Rs 93,358 crore at the end of the March quarter.
“Developers will not be in a hurry to sell now and give deep discounts. Their tax burden will reduce,” said Amit Bhagat, chief executive of ASK Property Investment Advisors.
However, some experts are of the opinion that real estate prices are still high and the impact might be nominal.
“Keeping in mind the current real estate prices, the move does not look to be that beneficial for the common man,” Partho Dasgupta, partner, tax and regulatory services, BDO India.
The affordable housing bracket
In terms of prices, ANAROCK Research considers affordable homes as those priced within Rs 40 lakh.
According to the Ministry of Housing and Urban Poverty Alleviation, affordable housing is defined on the basis of property size, its price, and the buyer’s income.
For instance, for the EWS, an affordable house must measure between 300 sq ft and 500 sq ft, with prices below Rs 5 lakh and Rs 4,000-5,000 as monthly loan repayment. The income ratios, in this case should be of 2:3. These numbers change for lower income group (LIG) and the mid-income groups (MIG).
The central bank’s definition, on the other hand, is based on the loans given by banks to people for building a house or buying apartments. It tweaked the loan limits from Rs 28 lakh to Rs 35 lakh in metros and from Rs 20 lakh to Rs 25 lakh in non-metros, provided the overall cost of the home doesn’t exceed Rs 45 lakh and Rs 30 lakh, respectively.