Clarity on Pradhan Mantri Awas Yojana, more tax benefits for homebuyers likely in today’s Budget

To boost sentiment and sales in the real estate sector vastly impacted by November’s demonetisation move, today’s budget announcements are expected to give a push to affordable housing, encourage cautious first-time homebuyers to invest in property and cleanse the sector of black money. These issues have also been part of the government’s manifesto.

The middle class also might find something to cheer about in the Pradhan Mantri Awas Yojana (PMAY), the government’s flagship programme for the poor. Prime Minister Narendra Modi had on December 31 announced that interest rates of 3% would be applicable on home loans of up to Rs 12 lakh and 4% on loans of up to Rs 9 lakh, under the PMAY. The Budget is likely to provide clarity on actual definition of beneficiaries who can avail of these benefits.

Reports suggest that those with an annual income of up to Rs 12 lakh are likely to get a 4% interest subsidy on a loan of Rs 9 lakh and those with an income of up to Rs 18 lakh might get a subsidy of 3% on a loan of 12 lakh.PMAY as yet has not covered the middle class but only the economically weaker section (EWS - or those with an annual income of Rs 3 lakh) and lower income group (LIG - or those with an annual income of Rs 6 lakh).

Experts suggest that the loan limits should be increased for major metros and made more realistic to bring in cities like Mumbai within the purview of this scheme as the problem of affordable housing is more acute in the metros due to the presence of huge migrant population. The income eligibility of beneficiaries under the PMAY scheme also needs to be revised upwards. Continued emphasis on infrastructure should also be a priority in the current subdued real estate market. There needs to be a focus on getting peripheral areas integrated with the mainstream city to further push the cause of affordable housing segment, says Samantak Das, chief economist and national director- research, Knight Frank (India) Pvt Ltd.

“If the income limit is increased, it will bring at least 90% first-time homebuyers under the ambit of PMAY,” says Pradeep Aggarwal, co-founder and chairman of the Signature Global Group which has launched a few affordable housing projects in Gurgaon and Sohna.

The interest rate subvention for low cost housing will go a long way in not only addressing the housing needs but also providing an immediate fillip to the economy. “The indirect tax collection from the increased housing consumption would contribute to funding the cost of interest subvention,” says Jaijit Bhattacharya, partner- Strategy and Economic, KPMG in India.

All these measures, if introduced in the budget, will have a positive impact on the economy of the country and significantly contribute to meeting the target of building 2 crore units by the year 2022 under the Affordable Housing for All scheme. According to rating agency ICRA, affordable housing is a Rs 6.25 trillion opportunity.

On the supply side too, the borrowing cost has to come down, say developers. “It is critical to give infrastructure industry status to real estate sector to encourage the affordable housing segment,” they say. Granting infrastructure status will help reduce the risk-weightage assigned to the sector by RBI. It is expected to enable the developers to raise funds cheaply and improve liquidity. This can revive the projects which are stalled due to liquidity crunch.

Budget 2017 is also expected to provide some cheer in the form of increasing the prevailing interest exemption of Rs 2 lakh for a single home loan.”To encourage homebuyers to invest in real estate, reduced interest rates by banks are not enough. The government should increase the interest limit offered to those taking a home loan and reduce the income tax rate. Offered as a package, these incentives, if announced in the Budget will put more money in the tax payers’ hands and boost spending in real estate,” says Amit Oberoi, national director, Knowledge Systems at Colliers International India.

“We also expect a separate deduction limit for home loan principal repayment. Currently, the principal repayment is merged with Section 80 C,” say experts.

The government may consider the global thought process of incentivising first-time homebuyers by lowering registration charges for the first time. It may also consider tripling property tax for second-time homebuyers to ensure that more housing stock is available for those purchasing a house for the first time, say real estate experts

The other important focus areas are likely to be GST rates and taxation aspect of REITs and “we expect the budget to provide clarity on them,” they say.

In view of the government’s increased focus and commitment to curb black money from the economy, one could expect certain new provisions in today’s budget as well, they say.

The stringent Prohibition of Benami Property Transactions Act (PBPT Act) came into effect in November 2016. Under the Act, a transaction is named ‘benami’ if property is held by one person, but has been provided or paid for by another person. Benami property owners could end up with up to seven years of rigorous imprisonment and pay a significant fine

The real estate market has been vastly impacted by the ban on Rs 500 and Rs 1000 notes on November 8. The note ban brought the market to a complete stand still and against this backdrop, developers have refrained from announcing new launches and buyers have become cautious before committing on purchases.

The Indian real estate sector suffered a revenue loss of around Rs 22,600 crore because of decreasing residential sales in the fourth quarter of last year on account of demonetisation. The Mumbai market was the worst hit with a notional loss of Rs 9,100 crore followed by Bengaluru (Rs 4,800 crore) and NCR (Rs 3,700 crore), as per Knight Frank India estimates.

The current unsold inventory in the realty market is around 11 lakh units in the metros and the irony is that there is a shortage of almost 1.80 crore units in the affordable housing segment. The demand and supply gap needs to be bridged as the current supply of affordable housing is only three lakh units. There is a almost 98% shortage of units in the affordable housing segment.