Affordable housing is housing deemed affordable to those
with a median household income as rated by country, State (province), region or
municipality by a recognized Housing Affordability Index. In India, it is
estimated that a large population is living below the poverty line and there is
huge demand for affordable housing. Some developers are developing low cost and
affordable housing for this population. The Government of India has taken up
various initiatives for developing properties in low cost and affordable
segment. They have also looked at PPP model for development of these
The Budget 2017 provided Infrastructure Status to Affordable
Housing. The budget also announced a range of policies regarding the housing
sector aimed at providing demand side as well as supply side stimulus to
affordable housing. Along with this, there was much needed focus on the
infrastructure, digitization of transactions and rural housing.
Infrastructure Status to Affordable
With the government announcing the Infrastructure status to
Affordable Housing, the Indian realty sector has seen a makeover wherein now it
has made easy availability of funding for affordable housing. From the
Developers point of view it has made much easy for them to access funds at a
lower interest rates and for longer terms, which also implies more investment
from External Commercial Borrowings (ECBs) and Insurance Funds.
The demand for affordable housing in India is huge and with
such a move, it can be seen that there will be more supply of affordable
housing to bridge the gap. The Infrastructure status also means speedier
sanctions and approvals. Thus, this will have a more positive impact on the
Indian realty sector.
As per definition of RBI of Affordable housing - “Affordable
segment means in the non-metros, the loan amount would be INR 40 lacs for the
property value of INR 50. lacs and in the metros the loan amount would be INR
50 lacs for the property value of INR 65 lacs. There are six metros in the country:
Mumbai, Chennai, Kolkata, Delhi, Hyderabad and Bangalore.”
Affordable Housing and Real Estate–
One of the sector which gained a lot in the Budget 2017 is
the real estate sector. A Swerve of measures from those on taxation to
availability of capital for developers, were announced in the Budget.
Accordance of infrastructure sector status to this segment
of real estate will help increase the much needed supply of affordable homes.
For Individual home buyers
Homes to get more spacious – the area measure for affordable homes eligible for
property developers’ tax exemption has been enhanced. Instead of built-up area,
now carpet area of 30 sq.mtrs and 60 sq.mtrs. will be considered. The 30 sq.mtr
area limit applies in case of houses within the municipal limits of the four
metropolitan cities while for the rest of the country the limit 60 sq.mtr will
apply. Further, for taking tax exemption the period for completion of project
has been enhanced from three years to five years.
- With this move, the home buyers can
expect the new launch of 1&2 BHK flats more spacious, up by size
20-30%, considering these changes as builders
get to pass on the benefit of tax exemption on the profits from projects
conforming to the area norms. It is observed that affordable sectors
contributes nearly 90% of the demand for new homes.
in holding period for long term capital gains – It has been decided in the
budget to reduce the holding period for considering gain from immovable
property to be long term from the present 3 years to 2 years and the base year
shall be shifted from 01.04.1981 to 01.04.2001.
can be observed as an investor friendly move, which will reduce the capital
gain tax liability while encouraging the mobility of assets. Also, the
financial instruments such as infrastructure bonds are also suggested in the
budget in which capital gains can be invested and tax liability can be avoided.
on rental payments – until now only the persons who are carrying on business or
profession having turnover above a certain amount, were required to deduct TDS
on payment of rent made. However, the budget has proposed that any individual
or an HUF, who pay any rent above INR 50,000/- in a month, will have to deduct
tax at source at the rate of 5% of the rent, either at the time of payment or
credit. Under this provision, the tax payer will not have to obtain the tax
deduction number. However, in case the owner does not furnish his PAN number,
the tenant will have to deduct tax at the rate of 20%.
housing to get Infrastructure Status – by adding affordable housing to the
32 sub sectors under infrastructure, accommodating real estate developers’
long standing demand for the same, these projects will have easy and low
cost access to funding. Thus, this whole phenomenon can lower the cost of
borrowing for builders.
for consideration period for tax on unoccupied houses – Presently, the
houses which are unoccupied after getting completion certificates are
subject to tax on notional rental income. The notional rent in respect of
the flats which remain unsold, shall have to be offered for tax, even if
the developer has not received any rent on such flats, only after one year
of completion of the project.
For income tax purposes, such flats shall be treated as
self-occupied and as a tax payer is allowed to have only one house property as
self-occupied, so, the other flats in possession of the developer will be
deemed to have been let out and thus, notional rentals will become taxable.
This provision will force developers to dispose of the flats quickly, so as to
avoid paying tax on rent which he has not received.
Other Major developments
The new credit-linked subsidy scheme for middle income
groups with INR 1,000 crore allocation is expected to enable access to cheaper
capital. Given the government 's thrust, flow of institutional funding to
affordable housing is likely to rise. With 80IB benefits continued for next
five years commercially, projects are more viable." National Housing Bank
has been allocated INR 20,000 crore to refinance home loans while Pradhan
Mantri Awas Yojana gets INR 23,000 crore.
With the proposed infrastructure status for affordable
housing and other steps, including a pledge to build one crore rural homes in
two years to help provide housing for all by 2022 will help affordable home
developers access cheaper institutional funds and tax exemptions to improve
margins, along with increasing supply. The Budget has also offered tax
incentives for affordable housing based on carpet area and not built-up space,
which will help buyers get bigger-sized homes.
While there are quite a few reasons to cheer, there are some
aspects on which the Budget was silent. There was no further clarity on Goods and
Service Tax (GST) or tax norms for Real Estate Investment Trusts (REITs). It is
indeed laudable that second-time home buyers have been discouraged, but it
would have been even better if the first-time home buyers had been given
interest exemption to a greater limit.
Another issue which demanded some attention was the Land Acquisition
bill. Exorbitant rate of land is the biggest issue plaguing real estate and
ensuring its productivity would bring greater efficiency in the real estate
sector. It can only be hoped that the next budget will see some of these issues
being brought to light and addressed effectively.
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