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Budget 2017 | Affordable Housing — Actualizing Housing For All By 2022

The Budget rightly focuses on providing affordable bank credit and cheaper funding for the real estate sector, especially affordable housing projects

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This year's Budget provides much needed stimulus to the affordable housing against the backdrop of rapid urbanization which is straining the existing infrastructure of our cities. I am confident that the stellar steps taken by the Finance Minister, most importantly, according infrastructure status to the affordable housing sector, will significantly boost this mission critical sector. In turn, hundreds of allied sectors also stand to benefit from the significant growth expected in the affordable housing over the next few years.

Nearly 28 per cent of India's population lives in cities and urban areas, a figure that is expected to rise to 40 per cent by 2020. Growing urbanization in India will have a significant impact on housing and infrastructure growth as over 300 million people are expected to urbanize over the next decade.

Encouraging Capital Flow And Funding
The Budget rightly focuses on providing affordable bank credit and cheaper funding for the real estate sector, especially affordable housing projects. Increase in allocation to Pradhan Mantri Awaas Yojana (PMAY) by more than 50 per cent (from Rs 15,000 crore to Rs 23,000 crore), and allowing National Housing Bank to refinance individual housing loans to the tune of Rs 20,000 crore are key positive measures in this direction.

Such measures will extend benefits to the sector that will ensure availability of affordable credit, uniform urbanization and further result in a spurt in development activity. There will be a significant multiplier impact across core sectors such as steel and cement to the tune of about Rs 2.7 trillion and create employment opportunities of about Rs 1.0 trillion. To encourage capital flow to the sector, the Budget also proposes long term infrastructure bonds (allowed by RBI) to finance affordable housing projects with similar capping.

Incentives For Developers And Tax Benefits
There are a number of incentives in the fine print, which will go a long way in attracting affordable funding and for the sector. This Budget has strengthened Sec 80 IBA, introduced last year, to provide income tax incentives for affordable housing developers. This year the Finance Minister has proposed that instead of 'built up' area, 'super area' will be considered for incentivizing builders. Further, modification of the '30 sqmt limit', to apply only on the municipal limits of 4 metros will effectively increase the size of the dwelling unit by 25 per cent to 35 per cent (which was previously considered under built up area).

To become eligible for claiming income tax benefit, the project completion deadline has been increased to 5 years from 3 years, thus enabling developers undertake large housing projects.
With regards to capital gains tax under joint development agreement, the Union Budget clearly articulates that the liability to pay capital gains tax will arise in the year the project is completed. Deferred payment of capital gains will also provide more funds in the hand of the developers, which can be plowed back into the project.

The Budget also provides tax relief on capital gains arising from the sale proceeds of immovable property by reducing the holding period to 2 years from 3 years and shifting base year from 1st April 1981 to 1st April 2001.

Reform To Transform

Going forward the real estate sector is likely to see a clean-up of the parallel economy, through the Real Estate Regulator (RERA) which will protect the interest of buyers and encourage best practices in real estate construction.

Clearly, the current Budget reinforces the government's commitment to transform Indian cities to boost nationwide economic growth by balancing social objectives and ensuring regional parity in urban development.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Rana Kapoor

The author is MD & CEO of YES Bank & Chairman and YES Institute

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