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How Budget 2018 can affect property investment?

5 min read

Property investments may get a much-needed boost. Image: Shutterstock

The property market hasremained subdued for quite some time.First, it was demonetisation that affected the market.This was followed by the Goods and Services Tax (GST).Then came the Real Estate Regulation Authority (RERA). The combination of these factors reduced the demand for new housing units. So, there is little doubtthat property investors will look for incentives in the upcoming budget.

How the path to investments has been smoothed

 There is now more clarity on ‘affordable housing’.The government has spelt out what it means. So, there is now a clear understanding of the term and its benefits/impact.

RERA: This is important for the sector’s development

The GST has beena welcome change for the sector. But the actual cost implications of the GST are still being evaluated at various levels.

Foreign direct investment(FDI) in real estate and the construction sector will impact the market in a significant way. The FDI in single brand retail is now 100% through the direct route.

Five steps that can boost investments

Property investments will get a much-needed fillip if the Budget considers the following:

1. Tax sops: Homebuyers want tax sops. A major relief could be increasing the Rs 2lakh tax-deduction limit for housing loans.There can also be a hike in the tax incentives for new homebuyers. At present, one can enjoy extra tax deduction up to Rs 50,000 under Section 80EE. An increase in the tax deduction up to Rs 1 lakh would encourage new homebuyers. This will be on top of the Rs 2lakh limit under Section 24.

2. Infrastructure status: This will lead togreater demand for housing.Financing costs will go down in the long term. The government has so far granted infrastructure status only to affordable housing. Once it gives infrastructure status to the real estate sector, it will create possibilities. Thanks to financial options and tax exemptions on revenues,development will pick up and private participation will increase. Besides,preferential lending will be allowed for key sector development.

3. SME status for small developers: Smaller private developers play a key role in lower tiers. But these developers find it tough to arrange funds. The government can come to their rescue by granting them SME (small and medium-sized enterprise) status. This will make it easier for them to get credit. Also, a credibility rating can be introduced forsmaller developers. This will ensure they receive formal funding. A government mechanism for this rating would be useful, too.

4. Incentive forrental housing:The industry has been hoping for more attention to rental housing schemes.It is crucial for social welfare.The government should do this in the way it incentivised affordable housing, including rental projects held institutionally. Examples are formats like housing facility for students orsenior citizens (long lease), and executive rental housing in growth centres.

5. Reduction in GST rates:The introduction of GST has made homescostlier. Before the implementation of GST, the tax outgo was around 5.5%. After GST, it has gone up to 12%. To encourage more participation from people, the GST should be slashed from 12%t to 6% with input tax credit.


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