The finance minister’s moves on the housing policy will increase demand and give a fillip to the real estate sector, making it more consumption-oriented

In an impact analysis on the Budget 2013-14, Liases Foras says that the proposals are targeted towards giving a boost to affordable housing. Construction and real estate sectors are expected to benefit, making it more consumption oriented. The moves will dilute speculation, making the market more efficient thus helping the industry to attain the economic balance. Since it is an election year, one can notice that the government has thought of the needy and the middle class, in its housing policy in urban areas.

Apart from giving a direct fillip to the housing sector, finance minister P Chidambaram has allocated a sum of Rs14,873 crore to the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) towards public transport and connectivity and an award of 3,000 kilometres of road project for 2013-14. This is likely to encourage decongestion of the cities by boosting demand for housing in peripheral regions and opening more land for increased supply. Similarly, cheaper credit for infrastructure companies and the issue of tax-free infrastructure bonds up to Rs50,000 crore are likely to provide ancillary benefits to the realty sector.

However, Chidambaram has been strict with home buyers in the luxury segment with a higher service tax burden. The rate of abetment on homes and flats of 2,000 sq ft, or costing over Rs1 crore have been reduced from 75% to 70%. This would also increase service tax outflow to an extent of 0.62%. Already, sales in the high-end segment have been sluggish across India, along with inventory pile-up. Liases Foras feels that the government policy changes should be considered as little steps towards curbing the high supply in the luxury segment.

Further, in a move towards transparency in transactions, the finance minister has proposed to deduct 1% TDS (Tax Deduction at Source) for all transactions with a value in excess of Rs50 lakh. The provision will be applicable from 1 June 2013. A buyer shall have to deduct TDS on every payment made to developers and sellers. The buyer will have to deposit the same with the government and issue the TDS certificates. The long-drawn process would make property purchases more tedious. It may dissuade investors, especially flippers and traders, from entering the market. Also, the excise duty on marble has been doubled to Rs60 per sq metre, leading to an anticipated escalation of construction cost.

All told, the finance minister has tried to help the home buyer in urban areas, buying one (or first) flat to reside in with his family. An allocation of Rs2,000 crore has been made to set up an Urban Housing Fund by the National Housing Bank and is aimed at giving an impetus to demand to urban housing. The budget proposal is a positive step towards providing mortgage finance to the urban poor, who generally do not qualify for bank finance.

An additional interest benefit of Rs1 lakh on first time home loans upto Rs25 lakh has been announced. However, this is applicable only for the first year and with a carry-forward benefit of the unutilized deduction to the next year. At the ongoing interest rates of nearly 10.5% pa, the total outflow for the loan amount of Rs25 lakh would be Rs3 lakh, of which Rs2.64 lakh (for first year) would be interest. Thus a consumer would get tax benefit equivalent to 95% of the total interest burden, which was earlier only 57%. The increased benefit would trigger demand from first time home buyers in the affordable segment across the country.

The finance minister intends to curtail the flow of black money in the housing sector, at least to the extent of ready reckoner prices. In case of purchase of immovable property by an individual or HUF (Hindu Undivided Family), if the difference between the agreement value and the ready reckoner rates/ stamp duty value is more than Rs50,000, then the difference would be chargeable in the hands of buyers as other income and would be taxed accordingly. While computing business income for developers, the clarification is as follows: In case the agreement value of any property is less than its ready reckoner prices/stamp duty value, then the Income Tax department would consider the ready reckoner prices as the full value of the property.