It is again that time of the year when the entire nation is glued to the screens to get the first update on the Union Budget.
The otherwise stagnated morale of the nation was enlightened with the announcement that focuses on achievement of holistic growth and development. It strengthens the interim roadmap with equitable allocation towards growth sectors focused on industry, MSMEs, manufacturing, youth, employment, rural and urban economies.
Amidst all these hubbubs around the announcement, a school of thought feels real estate was side stepped in this announcement. A more holistic and growth-oriented approach has been taken by our finance minister that would, in bits and pieces, impact real estate sector as well. While some criticized the less clarity on the industry specific announcement, the policies are lauded as “prudent and 360-degree” by many.
The specification of INR 10 lakh Crore allocated under the PMAY aims at resolving housing needs of 1 Crore urban poor which is a significant step towards the holistic goal of “Housing for all”. Additionally, the subsidies on interest rates would boost the demand for housing.
Rationalization of stamp-duty will make the process more affordable, especially benefitting the women and the newer regulations bring better transparency and safety in both outright and rental market.
One major area addressed in the budget that created a stir of opinions amongst individuals and taxpayers is the indexation elimination and long-term capital gains rate. In an effort to simplify the tax process, the Finance-Minister has eliminated the indexation clause for real estate assets and reduced the long-term capital gains (LTCG) tax rate from 20% to 12.5%.
It is true that this move will bring down average tax incidence, but there is high likelihood of higher effective tax burden for property owners, particularly those who are holding properties for longer time. On the other hand, this change will infuse higher degree of liquidity in property transactions and will bring in the required level-playing field across different asset classes pertaining to long-term capital gains tax, benefitting investors going forward. Overall, it should be kept in mind that the impact of withdrawing indexation and bringing down the LTCG tax rate will vary across properties and depend on parameters like holding period and growth in price.
The budget also set aside allocation towards infrastructural development with setting up of industrial parks, vegetable supply chains near urban consumption centers and plug-and-play industrial parks in and near 100 cities to enhancing the share of manufacturing sectors’ share in the GDP that ultimately increases the demand for industrial real estate.
Similarly, the removal of angel tax will support the startup ecosystem and enable more such initiatives to be domiciled in the country. All these initiatives ultimately increase the need and demand of real estate in the market.
Although there are some unanswered areas and concerns regarding the industry, overall, the budget has brought in a ray of hope in the longer run for home buyers, developers, and other stake holders of the sector.
