Budget Analysis: Mixed Bag for Real Estate

Published on Feb 28, 2013, 09:20 PM IST
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The union budget may have failed to live up to expectations for most sectors but looks positive for real estate at large. In comparison to the previous budget, the union budget 2013-14 continued its support for the housing sector. Infrastructure has received a major boost, especially transport and energy segments. Further steps to increase funding for roads, highways and other infrastructure will surely add more terrain on this sector.

In addition to this, plans had already been drawn up to establish seven new smart cities along the industrial corridors. Announcement of two industrial corridors, Bangalore- Chennai and Bangalore - Mumbai will certainly boost realty in Bangalore.

The good news, Finance minister has raised the tax deduction limit by
1 lakh for first time home loan takers to promote housing sector. If a person taking loan for his first home from a bank for up to 25 lakh during the period April 1 2013 to March 31-2014 will be entitled an additional deduction of up to 1 lakh. If this limit is not exhausted, the balance can be claimed in year 2015-16. This deduction will be over and above the existing deduction of 1.5 lakh. This move is likely to promote housing in the smart budget segment as the bulk of properties in metro cities are priced above 50 lakhs and much of it is funded through loans.

On the flip side, Luxury homes are likely to get more expensive with the reduction of abatement on service tax availed by real estate developers for homes above 2000 sq ft or costing over
1 crore and above to 70% from 75% earlier. The rate of abatement is used in calculation of service tax by the developer. Reduction in abatement will result in higher input cost that will be considered for calculation of service tax. Developers also seem to be ready to pass on the impact of higher service tax onto consumers who will in turn pay more to buy these houses.

The budget also proposes to levy a one per cent TDS on immovable properties of above
50 lakh with an exception of agricultural land. Considering that the TDS is to be charged on the gross transaction value rather than net gains, sellers will have cash flow impact in situations where sales are at zero / negligible gains or at loss. This directly has an impact on people looking for a second home as an investment.