Buying a home? Here are 5 things to expect from Budget 2015-16

The upcoming budget is important for many industries in India, especially for the real estate industry which is looking for much needed incentives, relief and interest rate cuts from the finance ministry. Developers are looking for announcements that will boost market sentiment, stakeholders are looking for REITs to be fast-tracked and home buyers are looking for better home loan options and affordable housing. Indeed, ‘affordable housing’ is expected to be one of the most important points in the upcoming Budget, with ‘housing for all’ expected to be the norm by 2022.

In fact, there is huge demand for houses that are priced between Rs.20 to Rs.40 lakhs. The rapid urbanization and congestion has led to many satellite cities, SEZs and integrated townships coming up and there is huge demand for residential spaces in these cities. The Planning Commission states that 600 million Indians will live in the cities by 2030 and that there will be a huge shortage of affordable homes.

Here are some of the provisions buyers can expect from the Budget.

1. The year 2014 saw a slump in the real estate market and many hopes are pinned on the budget to set off a recovery in the system. Home loans are expected to be made affordable, with commercial banks presently offering high interest rates that range between 10.15% and 10.40% and cannot be afforded by mid-income groups. Industry experts want the interest rates to be whittled down to 7.5% to 8% at the most. The high interest rates have deterred spending and the demand for houses has fallen drastically, with much oversupply and unsold inventory by the developers. The budget should bring the interest rate on home loans down to between 7.5%-8.0%.
2. The RBI has also introduced a new methodology to ensure that lower interest rates will translate into benefits for both old and new borrowers. The RBI wants to make the methodology of base rates, which are the minimum rates at which banks can lend money to customers, more transparent.
3. Another important expectation from the Budget is less taxation on purchase of houses. There are multiple taxes that the home buyer has to pay when purchasing property, including stamp duty, reckoner rates, value-added tax and registration fee. The ready reckoner rates in Mumbai, for example, have been increasing year by year and the prices are exorbitant in the city. This has been a huge setback for developers in Mumbai and for home buyers, who have to pay registration costs as high as 6% of the property price. Reduction of these taxes by a few base points will be a huge shot in the arm to the real estate industry in all major cities. State governments should reduce stamp duties and a slab based taxation system seems to be much needed.
4.  Apart from this, the industry is hoping that the government passes the Real Estate Regulatory Bill and the much needed ordinances to the Land Acquisition Act. The Real Estate Regulation and Development Bill is being drafted by the government, to keep check on real estate activities and developers.
5. Expectations include more tax benefits to home buyers, who can possibly claim Rs.2 lakh deduction on interest for home loan, as against the lesser rate of Rs.1.5 lakhs. This is expected to get more buyers interested in purchasing properties. Section 80EE, which allowed a Rs.1 lakh exemption to first time home buyers, no longer exists starting from this financial year. Therefore, to make up for this, the government is expected to announce tax benefits on home loans and special packages for first-time buyers.

Overall, reforms in the manufacturing sector, focus on infrastructure and REITs and infrastructure investment trusts will also be conducive to the real estate market this year.