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Budget 2013 a damp squib for real estate

, March 1, 2013, 0 Comments

The home buyers as well as the real estate industry were eagerly looking forward to some positive announcements in Budget. Some of the key expectations were infrastructure status to affordable housing, Industry Status to the real estate sector, increasing the exemption limit for interest on Housing loan from the present 1,50,000 to 2,00,000 and time frame for introduction of the Real Estate Regulations

Unfortunately, the budget has failed to live up to these expectations. There was nothing much in the budget that would directly have a significant impact on the real estate sector. However, the boost given to the infrastructure would indirectly have a positive impact on the sector.

Let’s examine some of the key announcements that would directly and indirectly impact the home buyers and the real estate industry.

Increase in tax exemption limit by 100,000 for interest on first home loan upto Rs. 25,00,000/-
The demand for increasing the income tax exemption limit for Interest on housing loan has been growing over the last few years. While the property prices (and hence the amount of loan) have gone up sharply, the exemption limit has remained the same.  Home buyers were highly disappointed when it was not announced in the last Budget. This year, in an attempt to please them the finance minister has increased the tax exemption limit. How the restrictions attached with this enhancement show that this is nothing but a lip service to the genuine demands of the home buyers.

Firstly, the exemption is available only for loan taken in FY 2013-14. Secondly it is available only for loans upto 25 lacs and lastly it’s for first housing loan only.

TDS @ 1% on transfer of immovable properties exceeding value of Rs. 50 lacs.
In order to curb black money in property transactions and also to bring them under tax net it is proposed to levy 1% TDS and sale of immovable properties exceeding value of Rs. 50 lacs. This proposal was made in last year’s budget also but was later rolled back.

Increase in service tax on luxury housing
The rate of abetment on homes and flats above 2,000 sq. ft. carpet area or costing 1 crore or more has been reduced from 75% to 70%. This effectively means increase in service tax from current 3.09% to around 3.71%. The FM’s reasoning for the same is that such houses are ‘high end constructions’ where the component of service is higher.

Rs. 2000 crore for Urban Housing Fund
It is proposed to start a fund for urban housing to mitigate the huge shortage of houses in urban areas. The Fund will be set up by NHB in consultation with RBI. The government will provide Rs. 2000 crs. for the same.

Increase allocation to Rural Housing fund from Rs. 4,000 crs. to Rs. 6,000 crs.

 

Boost to Infrastructure

Tax Free Bonds
The Govt. will allow some Financial Institutions to raise up to Rs. 50,000 crs. through tax free Infrastructure Bonds in 2012-13.  Such institutions had raised Rs. 30,000 cr. in 2011-12 and are expected to raise Rs. 25,000 cr. in 2012-13.

Industrial Corridors
The Delhi Mumbai Industrial Corridor (DMIC) project has made rapid progress. Plans for seven new cities at industrial corridors have been finalised and work on two new smart industrial cities at Dholera, Gujarat and Shendra Bidkin, Maharashtra will start during 2013-14.

The Department of Industrial Policy and Promotion (DIPP) and the Japan International Cooperation Agency (JICA) are currently preparing a comprehensive plan for the Chennai Bengaluru Industrial Corridor. The corridor will be developed in collaboration with the Governments of Tamil Nadu, Andhra Pradeshand Karnataka.

The next corridor will be the Bengaluru Mumbai Industrial Corridor on which preparatory work has started.

Road network
The bottlenecks stalling road projects have been addressed and 3,000 kilometres of road projects in Gujarat, Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh will be awarded in the first six months of 2013-14.

A road regulatory authority would be constituted this year to address issues such as financial stress, construction risk and contract management in the sector.

Railway Budget (impacting Mumbai)
The long awaited Air-conditioned Suburban train services will finally start this year on the Western Line. Trials runs will start by June-July. These trains will run on Churchga-Borivali and Churchgate-Andheri sector. As of now,12 services have been planned per day.

The much awaited Churchgate-Dhanu services is also likely to start this year. This will give a major boost to real estate prices in area beyond Virar like Palghar, Boisar and Dhanu where construction activity is already in full swing.






About author
Paresh Karia is a Chartered Accountant with an experience of over 15 years in the banking and financial services sector. His past experience includes working with reputed organizations like HDFC Bank, ICICI Bank and ABN Amro Private Banking. ...more