How Union Budget 2018 is going to Impact on Real Estate

Finance Minister Arun Jaitley presented the annual budget for 2018 on Thursday, 1st February 2018 amidst a lot of chatter about income tax slab reduction, tax base increase etc. and a major debate whether the last budget of the first inning of the BJP government would focus more on the election or public welfare. The budget was received with mixed reactions from the opposition as well as general public. However, after facing the wrath of demonetization, the real estate markets in India, which are still trying to overcome the fall, seeks respite in the new budget.

The budget expectations of the real estate sector Post the hard-hitting phase of demonetization and single tax regime in India, the real estate sector had high hopes from the government to help the markets soar to their previous value. The real estate sector falls under 18% tax slab under GST with one-third abatement for the land. The real estate markets had recommended to the government to increase the abatement of the land to 50%. This was done in lieu of the fact that in most of the developing cities, especially metro cities, the cost of the land is almost 50% of the total project cost.

The real estate market was also looking for concessional GST for the housing sector, change in capital gain tax window, stamp duty regularization to 4% overall etc. The real estate markets also expected a revamp of the Budget 2018 Budget 2018 Budget 2018 is a fairly agriculture and farmer focussed budget, skewed towards education, health, and agriculture. There are certain provisions which impact the real estate markets as well. One such project is “Housing for all by 2022”. This is one of government’s pet project on which it is relying a lot of hope.

As a part of this scheme, the government wants to deliver over 10 million houses, of which approx. 95% is to be delivered to the Economically Weaker Sections (EWS) and the Low Income Groups (LIG).

The plan of “housing for all by 2022” is almost on track as the government is looking forward to building one core houses under Pradhan Mantri AwasYojna (PMAY) and is also potentially setting up a housing fund under the National Housing Bank (NHB) for lending under priority sector which will help add additional impetus to buying and development under this sector. This shall be funded from the fully serviced bonds as authorized by the central government and the priority sector lending shortfall.

The demand for housing sector also tends to increase as the buyers will be provided with additional assistance in the form of ease of credit for their aspiration but affordable homes.

The central government’s aim of providing housing to all by 2022 and the continued focus on smart city projects is a boon for real estate as it assists in continuously increasing the demand in real estate sector and helping real estate markets fulfil the ever-rising demands of the public for their dream projects.

A boon in disguise for the real estate markets is government’s clear thrust on increasing the income of the farmers in both rural and urban sectors. An increase in farmer’s income would result in increasing their purchasing power which will ultimately lead to a boost in their consumption. This boost in consumption of rural agriculturists will inevitably and essentially result in an increase in their demand for proper housing and other amenities leading to a soaring demand for real estate projects giving the real estate markets a much-needed boost

Impact and repercussions on the real estate market The real estate market has welcomed the 2018 union budget with mixed reviews.

Where on one hand the government’s policy of “housing for all by 2022” has shown a ray of hope to real estate in the form of business opportunity, on the other hand, the complete over passing of the tax reduction expectations has led to a bereaved environment in the real estate markets.

According to the real estate market experts, the Union budget seemingly is heading to have a minimal direct impact on the Indian real estate markets. The union budget 2018 seems to be a balanced one but has no visible boon for the already suffering real state.

The constant rated of taxation refuse to cater to mainstream real estate demands and the budget seems to be bereft of any meaningful interventions to assist any progress in any manner.

Also, by refusing to introduce any change in the active real estate markets, in the form of the abatement of the land, the government has refused any further intervention in the demand and supply dynamics of the real estate markets in India. Apart from turning a cold shoulder to the tax reduction for the real estate markets, the government has also held back the Real Estate Investment Trust (REIT). Even though there are various regulatory approvals that have been put in place for the better management of India’s real estate markets, Real Estate Investment Trusts (REITs) have a potential to convert the entire functioning structure of the real estate markets. The steps which needed to be taken for making REITs more attractive to the investors, such as reducing the long-term capital gains holding period from the minimum duration of 3 years to a minimum duration of one year have completely been ignored.

As of now, it seems that the overhauling the real estate sector market was expecting from the budget to soothe itself of the blow caused by single tax regime would have to wait for now.

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