The right sops

Listed realty stocks were big gainers on Wednesday, driven by the perception that real estate was among the few corporate recipients of sops in Budget 2017. But the Budget’s long list of proposals for real estate is quite nuanced, making a clear distinction between the urban, upmarket segment of the realty sector, and the neglected, affordable housing segment. While the proposals for urban real estate are aimed mainly at reviving transactions in the stalled marketplace, sizeable outlays and tax breaks have been mostly reserved for affordable housing.

Both builders and buyers of affordable homes have received material benefits. The outlay for the Pradhan Mantri Grameen Awas Yojana (PMAY) has been raised sharply from ₹15,000 crore to ₹23,000 crore. This will go mainly toward funding the credit-linked subsidy and interest concessions on home loans up to ₹12 lakh promised to home-buyers from economically weaker sections and the low income group. Granting infrastructure status to affordable housing will mean access to lower cost funding for builders of such homes.

The tax break allowing 100 per cent profit deduction for affordable home developers has proved quite popular and it is good to see relaxations in the stringent rules governing this. The Budget has stretched the timeline for completing these projects from 3 to 5 years. The area restrictions on these homes, specifying that they must be no more than 30 square metres if located in the metros and 60 square metres if located elsewhere, have been made applicable to carpet area rather than built-up area, allowing for bigger units. But the question is why such rules are necessary in the first place. If restricting the scheme to genuinely deserving buyers is the intention, capping the annual income and loan size for eligibility is sufficient. It is interesting that the finance minister has refrained from raising the annual interest exemption on home loans from ₹2 lakh, despite industry demands. Indeed, he has gone a step further to restrict tax breaks from notional ‘losses’ on second and subsequent homes to ₹2 lakh a year. This should discourage tax-driven over-investment in real estate. A shorter period for sellers to claim capital gains tax benefits, a revised base date for indexation, and the proposal to defer taxation on joint development of property are all aimed at encouraging owners of land and property to monetise their assets.

All this will hopefully nudge realty players as well as home loan companies to repurpose their business models to cater to the bottom of the pyramid. For too long, action in the Indian realty sector has centred around pricey urban homes, leading to a paradoxical situation where developers in the top eight cities are sitting on lakhs of unsold homes, even as the country faces a shortage of 180 lakh housing units. Having strongly signalled its thrust on the PMAY, the Centre should actively monitor the scheme’s progress to ensure that its promise of delivering 2 crore low-cost homes by 2022 is met.

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