Budget 2018

Impact of budget 2018 on real estate industry

Hopes of revival were dashed when Budget 2018 did not spell out a recovery roadmap for the real estate sector still reeling under the impact of demonetisation. Regulatory reforms and credibility crisis remain prime issues of concern. There appears to be little in the Budget to stimulate demand. At least this is how the industry looks at it. Or is there another side that should be highlighted to make it balanced?

   No incentives

Substantial incentives to individual taxpayers were missing from the Budget. No increase in tax savings on home loans. The absence of changes in the tax slabs was another dampener for the salaried class. There was nothing to what the home-buying appetite.

   High circle rates

After demonetisation, the secondary market underwent turbulence due to liquidity crunch. In major cities, the circle rates were increased and had become more than the market rates. This created a gap between the two rates, which was counted as income in hands of both buyer and seller.

   Relief in rates

State governments fix these circle rates and it is usually higher. There was a mention of minimum rates at which a property has to be registered in case of its transfer. The Budget has given relief by allowing up to 5 percent gap between the circle rate and the market rate. This has the potential to revive secondary market transactions.

   Tax on vacant property

Taxation on vacant property needs to be dropped. A tax based on notional rent is charged if an apartment is lying vacant. In order to create a housing surplus, vacant flats will be there.

   Lower GST slab

There is an entry and exit cost when it comes to real estate investments in the form of stamp duties and GST. The effective GST rate on affordable housing is fixed at 8 percent while the rest is pegged at 12 percent. There is a need to bring down the rates to 6 percent for people to invest in real estate.

   Less direct impact of budget

This Budget seems to have a minimal direct impact on the real estate sector – a departure from the last three budgets. Some prefer to call it balanced with its focus on affordable housing, without any direct impact to boost mainstream demand in the industry.

   No tangible budget moves

A sector grappling with a new reforms-driven order has been ignored at a stage when it needs tangible budgetary measures to strengthen itself. Demand and supply dynamics of real estate sector received no intervention. A sector that contributes to employment generation, exchequer, and economy has been left in the lurch. This seems to be the grudge of developers who examine the budget with a scintilla of cynicism.

   Impetus to affordable housing

However, the setting up of a dedicated affordable housing fund under the National Housing Bank for priority sector lending will provide an impetus to the development of housing in this segment. The establishment of a dedicated Affordable Housing Fund (AHF) in National Housing Bank will be funded from priority sector lending shortfall and fully serviced bonds authorized by the Centre. This fund will help major real estate companies delve into the affordable housing segment as a viable business opportunity. Continued focus on smart city projects is expected to boost real estate activities further. These are some major positive takeaways from Budget 2018.

With the stress on affordable housing segment, the Budget seems to have shifted its focus by identifying the importance of housing for all. And this is certainly a boon for the real estate sector that seems to have concluded that Budget 2018 gave no impetus to the real estate sector.

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