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Budget Breathes Life In Realty Sector

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Apex bodies of real estate developers never tire of pointing out that the housing and construction industry is crucially poised not only as a large employment generator, but a central cog that provides momentum to a large maze of inter-related industrial and manufacturing units. The developers thus claim that the housing and realty sectors provide direct employment to 18 million workers directly and as many as 80 million indirectly. Besides this, a large number of upstream industries such as steel manufacturing, wood, plastic, cement and glass are directly dependent on the performance of the real estate industry.

It is therefore no surprise that the NDA government is keen to breathe some life into the stagnant realty sector by stoking demand for housing. Finance Minister Arun Jaitley has done this through a slew of concessions that will put more money in individual consumers’ hands and make it more attractive for them to invest in housing.

Two significant measures will put more money in the hands of a large number of people. First, the FM has enhanced the threshold level for income tax for individual tax payers from the earlier Rs 2 lakh to Rs 2.5 lakh a year. This has been a bit of a disappointment as it was widely expected the exemption limit would be raised to anything between Rs 3 to 5 lakh per annum. Second, he has raised the Public Provident Fund (PPF) ceiling from the current Rs. 1 lakh to Rs. 1.5 lakh in a financial year. PPF is one of the most popular tax-saving schemes since the PPF corpus is tax-free at all three stages. The investment is eligible for tax deduction under Section 80C, and the interest earned is tax-free.

Besides these, the finance minister has made it more attractive to raise home loans by increasing the exemption limit of home loan interest payable from Rs 1.5 lakh to Rs 2 lakh and increasing the exemption under section 80C, which includes payment of the principal of the home loan, also from Rs 1.5 lakh to 2 lakh.

Says Surabhi Arora, Associate Diector – Research, Colliers International: “This is a positive move. Increase in disposable income in the hand of common man will in turn increase the spending power and boost domestic investments. This increase will promote home ownership thereby giving a boost to the housing sector and other related industries like steel, cement, brick, wood, glass.” “The increase in interest exemption of Rs 50,000 for loan availed on self-occupied house property, will give a savings of Rs 5,150 to individuals annually and Rs 5,665 for the superrich,” points out Vineet Agarwal, director of the management consultancy KPMG.

In another significant measure, the finance minister has included slum redevelopment in the list of eligible projects that can be undertaken by companies under the corporate social responsibility (CSR) programme. This is likely to provide some funding for providing legal and affordable housing to those living in urban slums. Says Boman Irani, Chairman and MD of Mumbai-based Rustomjee Developers, “Slum Rehabilitation coming under CSR will have significant impact on Mumbai residential market as it will encourage more SRA housing. This will be a great boost for Mumbai where 60 percent of the population still lives in slums “

However, there are those who feel that more measures that were necessary have been missed out than have been included. According to Prashan Agarwal, co-founder of PropTiger.com, an online real estate advisory service, “The budget while it clearly spells out the initiatives to drive up demand for housing, has been silent on measures to improve supply of affordable housing – like the real estate bill, land acquisition bill, single window clearance, excise duty reduction on cement/steel – the key divers for construction cost.”