Real Estate

A boost for the real estate sector

Bavadharini KS | Updated on July 05, 2019 Published on July 05, 2019

The change

The Union Budget has enhanced its focus on real estate, particularly in the affordable housing segment.

To stimulate demand in the residential market, the Centre has announced additional deduction in income tax of ₹1.5 lakh for interest paid on housing loans for affordable housing properties (valued up to ₹45 lakh), over and above the exiting deduction of ₹2 lakh.

Further, to narrow the demand-supply gap in the market, the Centre has proposed to open up land parcels of government and public sector undertakings to be utilised for affordable housing and public infrastructure. A Model Tenancy Law would be finalised to boost the rental housing market and improve rental yield in the country.

The background

The real estate sector had been in trouble for a long time. To rectify some of the fundamental issuessuch as unfair practices by developers and lack of transparency, the Centre brought in the much needed reforms and policy changes to make the sector consumer friendly. This includes introduction of GST (Goods and Service Tax), RERA (Real Estate Regulation and Development Act), amendment to black money bill and making REITs (Real Estate Investment Trust) financially viable.

These initiatives dampened the residential property demand initially. Buyers lost the confidence in the market and almost all the realty players including the organised ones such as Prestige Estate Properties and DLF took a hit.

As residential demand fell, margins came under pressure as developers could not increase their property prices. The unsold inventory levels rose to over 6.5 lakh units in 2016. The new product launches also declined; from over 3 lakh units in 2013, it fell to less than 2.3 lakh units in 2017, according to ANAROCK property consultants.

Though the realty market is on a recovery path since 2018, the recent crisis in the NBFC (primary lender for realty players) sector affected the market in FY19. But companies with better leverage fared better.

The verdict

Though some of the expectations such as infrastructure status to real estate and benefit of input tax credit in the GST have been left out, affordable housing has received sustained focus this time, and this will benefit both property buyers and developers.

Developers have been able to realign themselves to tap into the opportunities available in the affordable and mid-segment housing and improve earnings given the incentives provided already (such as 100 per cent tax holiday for affordable housing projects). For instance, Brigade Enterprises has launched 2 million sq ft (four projects) out of 5.5 million sq ft in the affordable housing segment for FY19.

Published on July 05, 2019

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