Some Positive Prescriptions
In the run up to the Budget, the Modi government took several policy initiatives to strengthen the ailing sector
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Even though the Union Budget for 2018-19, falls far short of expectations, especially in the absence of a booster dose – for the struggling real estate and housing sector, it may well be described as a balanced and positive Budget.
In the run up to the Budget, the Modi government took several policy initiatives to strengthen the ailing sector. Last year, a major initiative was taken to give industry status to affordable housing.
In the pre-Budget initiatives, the scope of interest subsidy under the Pradhan Mantri Awas Yojana (PMAY) for affordable housing, was broadened by liberalising the area and income criteria. Further, for affordable housing, tax relief was provided by reducing GST on under-construction residential property from 12 per cent to eight per cent.
And to keep that momentum, this year’s Budget gave priority to affordable housing by making a provision to build 51 lakh rural and 37 lakh urban houses, earmarking Rs 2 lakh crore for the Smart Cities Mission, besides creating an exclusive fund for affordable housing.
There are several provisions in the Budget which will indirectly boost real estate. As part of the government’s continued focus and commitment to streamline infrastructure in both urban and rural areas, the Budget provided a renewed thrust to it by ensuring a 20 per cent hike in the overall infrastructure Budget, with an allocation of Rs 6 lakh crore, besides earmarking Rs 19,000 crore for AMRUT.
Realising the importance of enhanced connectivity through infra upgradation for revving up real estate, the Budget made a provision of Rs 5.35 lakh crore for constructing 35,000 km of roads under the ambitious Bharatmala project, relaying of 18,000 km of double-railway track, allocating Rs 17,000 crore for the Bengaluru Metro and Rs 11,000 crore for the Mumbai suburban railway. There was also a five-fold increase in the Budget provision to over Rs 1,000 crore for operating flights in tier-2 and tier-3 cities .
However, the Budget’s failure to address key issues of single-window clearance and granting of industry status, has come as a damper, especially as these two initiatives would have helped tackle the major problem of project delays and non-availability of cheap bank funding. The lack of any relief on the personal income tax front was also quite disappointing as standard deduction of Rs 40,000 was inconsequential.
A hike in the income tax limit, along with an increase in the tax deduction limit on interest on home loans, would have helped the salaried class. It would have made a higher disposable income available to the salaried class, which in turn would have propelled home buying.
As high transaction costs have been a hurdle to pushing up sales, it was expected that the Budget would announce measures to reduce the GST rate for mainline residential real estate the way it was done for affordable housing, by cutting down the tax rate from 12 per cent to eight per cent. But the Budget did not live up to this expectation, even though it did address the anomaly under Section 43 CA to tax real estate transactions on the real value rather than the value arrived at by artificially inflated circle rates.
Notwithstanding these shortcomings, this last full-fledged Budget before the general elections, is a forward looking Budget for the real estate sector.
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