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Union Budget Expectations: Will Homebuyers Get A Major Relief?

Saturday, January 26, 2019

While it will be an interim budget to be released on February 01 this year, housing as a core sector shall remain the subject of attention. After a considerably long haul, the housing and real estate sales picked up in the last few quarters of 2018; however, that was largely because of the homebuyers finally entering the market after a long period of uncertainty emanating from the structural reforms in the sector.

Now, the question is whether the uptick in housing consumption is sustainable or not. I believe that the purchasing power of middle-class homebuyer needs to be improved. If we factor in the effective GST rate of 12 per cent on under-construction properties, it comes out as a significant deterrent, especially as banks do not finance GST and stamp duty and homebuyer has to provide for this from his own savings.  Although the MIG and LIG categories are fairly incentivised with Pradhan Mantri Awas Yojana (PMAY) and the related programs like Credit Linked Subsidy Scheme (CLSS), but there the supply of affordable housing is still very limited from private developers.  Most of the developers are struggling with completion of their existing projects, most of which do not qualify under CLSS guidelines and hence are not able to launch new affordable housing projects. At the same time existing unsold units, which will qualify in CLSS, are far from completion reducing customer confidence in buying them.

This is how a large part of the homebuyer population in urban areas goes out of the ambit of affordable housing schemes. As per PMAY in FY19 (till July 2018), only 15,843 buyers have availed subsidy in MIG category, which is 10% of more than 1.5 lakhs home sold by private developers in top 9 cities during first half of FY19.

While there are talks to reduce the GST rates on housing, the average homebuyer under the current scenario needs much more support than ever before. Raising the income tax exemption limits on paying home loan interest is a potential way to incentivise homebuyers. Currently, the overall tax benefits is limited to Rs 2 lakh, which if raised to Rs 3 lakh can enhance the purchasing power of homebuyers in a significant way. Similarly modifying personal income tax slabs and reducing surcharges can provide additional income in the hand of home buyers. Typically governments do not provide changes in taxation structure in interim budget and only provide for expenditure but expectations are high this time as India has seen good growth in direct tax collection.

Homebuyers will be keenly looking for policy announcements and guidance in this budget.

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