How Budget 2015-16 affects real estate sector?
After the announcement of the Budget 2015-2016, the real estate sector was quite vocal about not receiving any tangible benefits. The entire budget did not have much related to real estate. However, some positive signs were ‘housing for all by 2022’ and some policy announcements regarding REITs. However, the Government affirmed its commitment towards affordable housing and real estate sector in its entirety as the RBI announced a repo rate cut of 25 basis points almost immediately after the Budget announcement. There is no two ways about it that a cut in home loan interest rates is the best and the most effective way of boosting property sales and to offset the slump faced by the real estate sector, and the repo rate cut was sure an indication of right intent.
Housing for all by 2022
Time and again the Modi government has iterated its intent to provide ‘Housing for All by 2022’, and it announced that it aims to provide six crore units of urban and rural housing to needful citizens. If the hints given by government is anything to go by, then the right steps would mean a huge boost to the affordable housing segment of Indian real estate sector. It remains to be seen how this government taps the public-private-partnership model to attain the best possible results for the sector as well as for the end-users.
Positive impact on Loan To Value ratio-Inclusion of stamp duty, registration and documentation charges in the cost of houses by banks
Recently, in a bid to improve the purchasing ability of buyers, RBI allowed financial institutions to include stamp duty, registration and documentation charge to the cost of the house. This simple, yet effective move will have a positive impact on the LTV (loan to value) ratio, which inadvertently will help more individuals in the lower income group to buy their own homes.
This policy, at present, is announced for properties that do not cost more than 10 lakhs, including these charges. This is a substantial move by the government which confirms that it is serious about addressing the needs of the economically weaker sections of the society.
The last few years had witnessed a huge decline in applications for home loans by economically weaker sections, and hence the policy change has come as a respite to many needful families.
Announcement of a relatively less constricting REIT regime and favorable tax transparency status
This is one policy which can have a vibrant effect, not only on the REIT sector in the new market, but also on the real estate market as a whole, especially as it presents real estate developers with excellent opportunities to exit the market at the right time and to monetize their real estate assets. Needless to mention that these REIT related policy changes present a huge opportunity to the commercial real estate market in India.
Increase in service tax is going to further affect the price of properties
This is one move which has attracted a lot of flak from the real estate sector, especially as the real estate sector was hoping from a respite from the rising costs. With proposed hike in service tax to 14 percent, it is going to further affect the price of properties, which can lead to a further slump as well.
Having said the above, it must be mentioned here that the repo rate cut (even if it is just 25 points), has been able to build confidence among builders and developers, as they now hope and expect more such rate cuts in the offing in the near future. And if one looks closely at the steps taken by the government, one can easily understand that each and every step is taken with an intention to make housing easy and affordable.
