Budget 2013: Impacts on real estate
Finance Minister P Chidambaram has announced the annual budget for 2013-14. While the analysts speculate the budget eying on forthcoming election or is an earnest effort to kickstart India’s growth engine; the common citizen is concerned with whether the budget will make his/her life better. Various industries and sectors are also speculating the impact of union budget in the coming 12 months.
A brief overview
- Proposed rebate of Rs 2000 for tax payers earning up to Rs 5 lakh
- Rajiv Gandhi Equity Savings Scheme (RGESS) is to be liberalised and investment in equity oriented mutual funds is to be allowed; tax deduction is allowed for 3 years instead of 1 year
- Additional deduction of up to Rs 1 lakh on interest payable on home loan up to Rs 25 lakh
- 1% Tax Deducted at Source (TDS) is proposed on immovable property transfer exceeding Rs 50 lakh
- Income limit for RGESS has been raised to Rs 12 lakh
- Those with an annual salary of Rs 1 crore and more will have to pay at least Rs 3 lakh in tax
- SUVs, cigarettes, restaurant service tax, smart phones, big homes are to be dearer
- Customs duty free allowance for jewellery for Indian citizens changing residence has been raised
Home buyers
Home sales have been going down in big cities over the past few quarters and the new budget makes an effort to rejuvenate the housing sector. An additional deduction of up to Rs 1 lakh is announced on interest for home loans up to Rs 25 lakh from banks. The value of the property must not exceed Rs 40 lakh. The benefit will be reaped by home loan seekers during the financial year 2013-14.
At present, the limit on interest payment deduction on home loan is Rs 1.5 lakh. The additional deduction means that the the total deduction against interest payment on home loan now stands at Rs 2.5 lakh. The deduction announced is expected to bring cheers for first time home buyers. The cap of home loan up to Rs 25 lakh and property value of Rs 40 lakh means that it would benefit the people looking to buy properties in tier II and tier III cities as well as distant suburbs of metro cities like Chennai, Mumbai and Delhi NCR. The reason being that it is almost impossible to find a property worth within Rs 40 lakh in metro cities.
Investors
Investors have been given a thumbs up as investment in Rajiv Gandhi Equity Savings Scheme (RGESS) is proposed to be liberalised. Now investment listed in mutual fund is allowed as well. Tax benefit on RGESS is also enhanced as tax deduction is allowed for 3 years instead of 1 year.
Along with RGESS liberalisation, Services Transaction Tax is reduced as well. On the lower side, tax on income on non-equity oriented Mutual Fund is raised from 12.5% to 25%.
What does the budget mean for Real Estate ?
Real estate in India has been hit by combined blows of low sales and weak economic performances of both global and domestic economy in the recent past. The sector has been hoping a push for revival from the new budget. However, the speculations about the new budget proposals have been mixed.
The additional deduction on interest payable on home loans up to Rs 25 lakh brings in hope for first time home buyers. However, the cap on property cost up to Rs 40 lakh means that there would be an increase in home sales only in tier II and tier III cities and real estate scenario in small cities is expected to be better in the 2013 financial year.
The budget announces 1% TDS on any realty transaction over Rs 50 lakh. Agricultural land is exempted from this. The introduction of TDS is aimed at better accountability and reporting of transactions of high value immovable property. The tax would be applicable on gross transactions and not on net gains. The realty analysts are disappointed with introduction of TDS; saying it means that property prices in cities like Mumbai will soar higher, which spells doom for all who have been hoping for a price correction in big cities.
Service tax has been raised to 3.7% from erstwhile 3.09% for house worth more than Rs 1 crore. Also, excise duty on marble has been doubled. It has gone up to Rs 60 per sq ft from Rs 30 per sq ft. It all means that the dream of buying a big home would cost the buyer more than before. It will increase the burden on buyers as well developers.
The real estate analysts are not very hopeful regarding the new budget as only 50-60% of home buyers go for home loan within the bracket of Rs 25 lakh. For developers in big cities the budget does not really bring anything to cheer for.
Government’s proposal of additional allocation to rural housing fund and launch of urban housing funds signal good days ahead for developers facing liquidity crunch. Proposed road projects in Gujarat, Madhya Pradesh, Maharashtra and Rajasthan could also signal future possibility of township growth in these states.
