Budget Analysis: Realty – Helping Affordability, Taxing Luxury

Meera Siva BL Research Bureau | Updated on March 12, 2018

The overall theme has been to provide incentive to low and middle income home owners while increasing revenue inflows from high price tag properties.

The Budget has four main proposals that are of interest to the real estate industry and home buyers. The overall theme has been to provide incentive to low and middle income home owners while increasing revenue inflows from high price tag properties.

Additional Home Loan Interest Deduction

Interest deduction of upto 1 lakh can be availed of by first time homebuyers, for loan of under Rs 25 lakh taken during FY14. This one-time exemption is in addition to the Rs 1.5 lakh home loan interest deduction allowed for self-occupied properties. Additionally, if the limit of Rs 1 lakh is not used-up in the first year, the balance may be claimed in the next accounting year.

This is a positive move for first time home buyers and is likely to increase demand. Besides the many unlisted developers who offer small to mid sized homes, listed companies who may benefit from this include DLF, Sobha, Puravankara, Prestige, Unitech and Godrej.

Increased Allocation to Housing Fund

The allocation to Rural Housing Fund, a scheme under National Housing Bank to provide finance for rural housing, has been increased by 50 per cent -from Rs 4,000 crore to Rs 6,000 crore. Allocation of Rs 2,000 crore has been made for the creation of a new Urban Housing Fund.

This is a positive move for low cost and affordable housing buyers in the rural and urban areas. Companies that would benefit from this measure include Smart Value Homes (Tata Housing), Ansal, Purvankara, Value and Budget Housing Corporation (VBHC), Foliage, Xrbia, Marg. Increased demand may also help bring additional players such as DLF, Omaxe who moved out of this space and players such as Mahindra and TVS who are interested in entering.

Higher Service Tax For Luxury Apartments

The service tax abatement for high end property is reduced marginally from 75 per cent to 70 per cent. Properties that fall under this category include homes and flats with a carpet area of 2,000 sq.ft. and higher or has a value of over Rs 1 crore. Low cost housing and single residential units continue to be exempted from service tax.

This is a marginal negative to home buyers in the premium housing segment. The raise is only marginal (0.6 per cent increase based on 12 per cent service tax) and keeping in view the higher price elasticity of this segment, we believe demand will not be impacted. This measure has neutral impact on companies such as Oberoi, Nitesh Estates, DB Realty and Prestige.

TDS Deduction for Property Transfer

TDS withholding of 1 per cent is proposed for immovable property transfers with value of over Rs 50 lakh. A similar proposal was introduced in the last Budget, but with lower limits on property value (Rs 50 lakh limit for urban areas and Rs 20 lakh for all others). This measure was later withdrawn, citing higher compliance burden on buyers.

This is a positive measure in the long run, as it increases property sale reporting and capital gains tax collection. In the short run, it is a negative for home buyers as they have to furnish proof of TDS deduction and payment to the registering officers. It also has a negative impact on redevelopment projects, as the additional burden of compliance need to be borne by the developers or passed on to the buyers. Companies such as HDIL, Ackruti, Orbit and Omkar who are in the re-development space are likely to feel the impact.

Published on February 28, 2013

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