The finance minister announced additional tax sop for new home loan borrowers, which would help partly boost budget housing projects in cities besides residential property sales in smaller towns. However, the impact for large developers would be limited at best and may well be neutralised with the move which will push up cost of luxury properties.
As per the budget announcement, first-time home buyers who are availing loan of up to Rs 25 lakh between April 1, 2013 to March 31, 2014 would be eligible for additional interest subvention of Rs 1 lakh. At present, this is allowed up to Rs 1.5 lakh for the taxable income.
Given that bulk of properties in metro cities are priced above Rs 50 lakh and much of it is funded through loans, a ceiling of borrowings up to Rs 25 lakh would restrict the benefit to only certain properties
Anuj Puri, country head at property consultancy firm Jones Lang LaSalle India, said, “The move will help boost housing sales in tier II and III cities and peripheral areas besides distant suburbs of metros, but not within the metros, where housing is more targeted towards the mid and upper income segments.”
The finance minister has also reduced the abatement on homes and flats of over 2,000 square feet carpet area or costing Rs 1 crore and above, from 75 per cent to 70 per cent. Effectively, this translates into an increase in service tax outflow, which means that luxury housing will now become even more expensive.
J C Sharma, managing director, Sobha Developers, the Bangalore-based listed realty player, said, “As such the budget is a status-quo, there will be marginal impact with regards to the rate of abatement, we do not foresee much impact.”
Another spanner on the revival of the real estate industry comes from introduction of tax deducted at source (TDS) at the rate of 1 per cent on transfer of immovable properties over Rs 50 lakh.
According to real estate property consultancy DTZ, while application of TDS will be a burden on end buyers, it also has a scope to reduce speculation in real estate market, particularly from investors. Moreover, it is unclear on how the tax will be deducted, when a buyer wishes to sell before completion or handover of the property and who pays the balance tax.
One big disappointment was for real estate-focused private equity funds. The realty funds have been looking for clarity on the pass-through status under the new norms. Realty funds are covered under the alternative investment fund (AIF) II category which the finance minister did not touch upon.
The industry was hoping that the tax benefit available to AIF I category (venture funds and infra funds) would be extended to other AIFs.
(Edited by Prem Udayabhanu)