Over the last few years, the one sector that has really struggled has been the realty sector. It all began with the excess inventory in most of the major cities running into several years of sales. Then there was demonetization, RERA and GST, which spooked real estate transactions in a big way. Real estate has always been a cash based sector and the cash crunch hit this sector really hard. Recently, the NBFC crisis also shut the funding taps for realty. In these conditions, the budget has some really positive provisions for realty?
Boost for realty sector
There were two positive announcements that are likely to directly impact the realty sector. Firstly, realtors had a problem with holding inventory because after 1 year they had to book notional rent on these properties. Now that has been extended to 2 years, giving some real relief to the realty sector. Realtors can now afford to hold inventory for a longer time period. Secondly, the tax benefits of low-cost housing have been extended by one more year till March 2020. This should spur investment in low cost housing by realtors. Stamp duty and GST have been the bone of contention. The budget has agreed to make a clarification on the GST on real estate deals and also standardize the stamp duties across cities. While no announcements have been made, the budget has clearly underlined that this work in progress.
An income boost to realty
The decision to raise the tax exemption limit to Rs.5 lakhs will also give a boost to housing demand. Since the net taxable up to Rs.5 lakhs will now be tax free via rebates, people in the middle income groups can plan their property investments accordingly. For example, if the individual structures the home loan in such a way as to get the full benefit of Rs. 2 lakhs under Section 24 of the Income Tax Act, then the exemption can really work in their favor. It is estimated that the higher exemption limit for taxpayers will give a boost to investment in housing as it could now become doubly tax efficient.
Second home thrust
Interestingly, this budget has also given a thrust to people intending to buy a second home. There are two specific provisions in the budget. Firstly, the notional rent on second home will no longer be taxable. Thus taxpayers can show zero rent if it is not leased out and also claim the dual exemption of Section 24 of the Income Tax Act. Secondly, there is also a kicker on the capital gains front. Currently, under Section 54, if the proceeds from the sale of a house are invested in another property then it is exempt from capital gains. Now the proceeds can be invested in two houses instead of one. This will give a boost to demand in smaller towns and tier-2 cities, boosting realty demand! ©