Acquisition of a house property remains an aspirational goal and a significant investment decision for every Indian, with the financial impact often spread over one’s entire lifetime. This especially holds true for the lower income and the middle-class sections, where expenditure, by way of home loan repayment, commands a lion’s share of the income.

Many a times, the magnitude of costs and the elaborate period involved towards payment of Equated Monthly Instalments (EMI) on housing loans, results in postponement of house buying decisions. With inflationary pressures, escalating costs of raw materials and labour, changing tax regimes, increasing land prices due to limited availability of land and rising demand for economical homes, postponement could result in one’s dream home turning unaffordable. Alternatively, one could land in a compromising situation where one is forced to buy a home in the outskirts or settle for a smaller sized home to suit one’s budget constraints.

The real estate sector in India, witnessing a slowdown in recent years, is currently plagued by slow-moving unsold inventory and shortage of funds. The industry is in an urgent need of fiscal sops to help revive growth.

Budget 2019-20 has systematically addressed the above concerns and attempted to reduce the costs of housing for the buyers, give impetus to developers in the affordable housing space and boost infrastructure development.

Let us look at the provisions of Budget 2019-20, specifically aimed at benefiting the real estate space:

1. Infrastructure is the key

John Maynard Keynes, the father of modern macroeconomic theory, had elaborated on fiscal spending on public infrastructure to spur economic growth. Along similar lines, the Government has announced Rs. 19,000 crore towards road building under the Sadak Yojna and proposed a roadmap towards boosting social and physical infrastructure. The emphasis on Pradhan Mantri Awaas Yojana (PMAY) housing and improved infrastructure in the Budget would ensure higher real estate affordability and accessibility, encouraging buyers to invest in homes, irrespective of location. Better road connectivity would enhance buyer interest even in homes located on the outskirts.

2. Higher disposable income in the hands of the home buyer

The government has proposed several tax benefits to increase savings of individuals with a 100% tax rebate on income up to Rs. 5 lakh and tax exemptions of up to Rs. 2.5 lakh for gross income holders of up to Rs. 7.5 lakh. The tax deductions available u/s 80C up to Rs. 1.5 lakh include expenses towards loan repayment of a home loan and stamp duty, registration charges towards a house property. The additional tax exemptions over Rs. 1.5 lakh and up to Rs. 2.5 lakh comprise sec 24 towards interest on a home loan, sec 80D towards medical insurance and sec 80CCD towards pension contribution.

According to an ET survey, these savings are expected to flow into the affordable housing sector where the home loans are usually in the tune of Rs. 10 lakh with EMIs ranging up to Rs. 10,000.

3. Extension of benefits u/s 80IBA till 2020

With the aim of actively promoting the housing sector for the lower-income and the middle-class, sec 80IBA was created, which provided a tax exemption on the profits to builders, arising from qualifying housing projects categorized under the low cost or affordable segment.

The Budget has announced the extension of Section 80-IBA benefits by another one year. This would provide a fillip towards achieving the Government’s goal of housing for all. Many developers, in the planning phase of 80-IBA compliant projects, with a time extension for obtaining the requisite approvals for such projects, will focus on developing more low-cost homes. The resultant increase in the number of 80 IBA compliant units would ultimately benefit the end users.

4. Doing away with the tax on notional rent from second house property

Under the erstwhile tax provisions, where an individual owned multiple house properties, he could treat any one of them as ‘self-occupied’ with nil annual value. Subsequently, he had to offer the other house properties to tax at a notional rental value. To stimulate demand for housing, the Budget has provided an exemption from tax levy on notional rent from the self-occupied second house property. This will result in cash savings for home buyers. This move is expected to benefit families that are constrained to stay at two locations due to job requirements, child’s education or care of elderly parents.

5. Increase in the holding period of unsold inventory for tax on notional rent

The residential real estate market is currently sitting on a massive pile of unsold inventory (estimated at 6.73 lakh across top seven cities) due to the low-yield from housing. This poses a considerable liquidity problem for developers, added to the tax impact on notional rent on such unsold units. As per Budget 2019-20, unsold inventory will be taxed as per notional rental income only post two years of completion. This will give a massive relief to realty players.

6. Sell one, buy two:

The announcement, to allow reinvestment of capital gains from the sale of one house property in two homes is expected to significantly prep up investment in residential real estate. The capital gains have a ceiling of up to Rs. 2 crore and can be exercised only once in a lifetime. This step can help diversify one’s real estate portfolio and accelerate demand for increased units in the realty space, including Tier-2 and Tier-3 cities.

7. The ceiling for TDS

On rental income hiked from Rs. 1.8 lakh to Rs. 2.4 lakh: This would aid in increased availability of rental homes and further sales in both primary and secondary markets.

8. Increase in standard deduction

for the salaried class from Rs. 40,000 to Rs. 50,000, will result in higher purchasing power. This would translate into improvement in home loan EMI repayment capacity. Further, the Government has extended the credit linked subsidy scheme to eligible home buyers.

Conclusion: The Budget 2019-20 puts additional money in the hands of residential real estate buyers, encouraging them to push up their budgets for new homes, while also providing tax incentives for investing in a second home. At the same time, the Government is encouraging developers to build homes with the lower- and middle-income groups in mind. The budget has balanced the needs of all three players in real estate on the demand and the supply side, namely developers, home buyers and investors. This opportunity to ‘have a roof over one’s head’, especially in the affordable housing space should be seized. With the favourable, invisible hand of the Government, proposal to further rationalise GST for homebuyers and expected reduction in home loan rates following a repo rate cut by the RBI, conditions are most favourable to invest in one’s dream home.