To boost the slowdown-hit real estate sector, the government on Wednesday announced an infrastructure status for the affordable housing sector to encourage investment in this segment and offered tax sops for developers sitting on completed unsold inventories. Giving infrastructure status to the affordable housing sector will open the door to foreign funds at cheaper cost to developers and attract more investments in the sector, experts said.
Affordable housing developers will also be eligible for government’s incentives, tax benefits and institutional funding, they said.
“Affordable housing developers will now be eligible for several government incentives, subsidies, tax benefits, and most importantly, institutional funding. The status could also mean that the government may release land specifically for affordable housing development in central locations of major urban centres in India,” said Neeraj Bansal, Partner and Head of Real estate and Construction in KPMG in India.
Hemal Mehta, Partner, Deloitte Haskins & Sells LLP, said: “With the infrastructure status, developers can access foreign funds at a cheaper cost by way of debt and it will be a priority lending for banks as well. This should result in progress in the sector.”
Tata Housing’s MD and CEO Brotin Banerjee said that infrastructure status to affordable housing was a long-standing demand of the sector. “The government has realised that housing and infrastructure can be two pillars to increase GDP and accelerate economic growth,” he said.
The National Housing Bank will refinance individual housing loans of about Rs 20,000 crore in 2017-18, the Finance Minister said while presenting the Budget.
To promote affordable homes, the government also proposed to amend the Section 80-IBA, relaxing the condition of period of completion of the project for claiming deduction from the current three years to 5 years.
“We propose to facilitate higher investment in affordable housing. Affordable housing will now be given infrastructure status, which will enable these projects to avail the associated benefits,” Jaitley said.
With surplus liquidity created by demonetisation, he said the banks have already started reducing their lending rates, including those for housing. Interest subvention for housing loans has also been announced by the Prime Minister.
Stating that affordable housing is one of the thrust area of tax proposals, he said: “In my budget proposals last year, I had announced a scheme for profit-linked income tax exemption for promoters of affordable housing scheme which has received a very good response.”
To make this scheme more attractive, Jaitley proposed certain changes in the scheme. “First of all, instead of built up area of 30 and 60 sq meter, the carpet area of 30 and 60 sq meter will be counted”.
Moreover, Jaitley said that the 30 sq meter limit will apply only in case of municipal limits of four metropolitan cities while for the rest of the country, including in the peripheral areas of metros, limit of 60 sq meter will apply.
In order to be eligible, the scheme was to be completed in 3 years after commencement, he said, and proposed to extend this period to 5 years.
The government also announced tax sops for builders sitting on a huge unsold stocks amid multi-year slowdown in the real estate sector, particularly housing segment.
“At present, the houses which are unoccupied after getting completion certificates are subjected to tax on notional rental income. For builders for whom constructed buildings are stock-in-trade, I propose to apply this rule only after one year of the end of the year in which completion certificate is received so that they get some breathing time for liquidating their inventory,” Jaitley said.
The Finance Minister also proposed to make a number of changes in the capital gain taxation provisions in respect of land and building.
“The holding period for considering gain from immovable property to be long term is 3 years now. This is proposed to be reduced to 2 years. Also, the base year for indexation is proposed to be shifted from April 1, 1981 to April 1, 2001 for all classes of assets including immovable property,” he said