The Budget had mixed bag for the real estate sector. While, it has given some relief to the affordable houses' buyers, It did not do much to augment the supply of the same or to contain the prices of apartments in cities.
The interest subsidy of 1% on housing loans of up to 15 lakh will boost the demand for low-cost housing. The subsidy is for homes worth not more than 25 lakh. Earlier, the interest subsidy was for loans up to 10 lakh for houses costing not more than Rs 20 lakh. In effect, the interest subsidy on a home loan of 15 lakh will be almost 15,000 per annum. Earlier, the maximum subsidy that one could have availed was only 10,000 per annum.
The subsidy announced in the Budget is expected to cost the exchequer approximately 1,000 crore. The interest rate subvention will be routed through scheduled commercial banks and housing finance companies registered with the National Housing Bank. However, this will not benefit the home buyers in metropolitan cities like Mumbai and Delhi as there are hardly any properties available for 25 lakh.
But in smaller cities, this will boost the affordable housing segment. However, in NCR, especially in regions like Noida Extention and Raj Nagar Extention, where twoand three-bed room flats are priced at less than 25 lakh, the demand is set to surge. ''Raising the priority home loan limit from 20 lakh to 25 lakh is good news for the low-income group segment, but will do nothing to ease the pain in metropolitan cities where realty prices are high, and therefore demand for affordable housing is the highest,'' said Anuj Puri of Jones Lang LaSalle India.
Knight Frank India chairman Pranay Vakil said there was nothing ''earth-shattering'' for the real estate sector for the third year in a row. Unitech MD Sanjay Chandra said that the measures would help generate demand and boost development of affordable housing.
Unitech has already recalibrated its strategy in order to attain its goal of achieving leadership in the Residential Housing Segment by introducing affordable housing as a product offering under the 'Unihomes ' brand, said Chandra. "Our recent launches of Unihomes in cities such as Rewari, Mohali, Chennai, Noida and Bhopal have been met with an encouraging response from the genuine buyers. With the new measures announced in Budget, we believe that the demand growth will be robust and we are well-placed to respond to this demand ,'' he said.
Besides giving subsidy on loan of up to 15 lakh, the government has also increased the priority home loan limit to 25 lakh from 20 lakh. This will help reduce the interest rates on home loans of up to 25 lakh. In the last budget, the government had directed that every bank had to contribute atleat 20% of its total loan portfolio towards this priority section.
In order to enable easier availability of housing loans for the affordable segment , the budget has proposed to create Mortgage Risk Guarantee Fund under Rajiv Awas Yojana scheme which provides guarantee for the loan taken by the Economically Weaker Sections (EWS) and Lower Income Groups (LIG). Allocation of 58,000 crore to Bharat Nirman projects and proposal to set up Mortage Risk Guarantee fund for rural housing will give rural people access to easy bank loans for building houses, thus increasing the demand for rural housing in the country. Parsvnath Developers chairman Pradeep Jain said, "As the project includes development of rural housing, this allocation is going to help the developers in constructing quality projects in rural parts of India."
The government's decision of not increasing excise duty on steel will help the developers in cutting input cost. But, the budget did not give any major relief to the construction sector. There is nothing on 80 IA and 80IB of IT Act, which provides for tax concessions on the construction of small size houses. Jain said that 30% to 36% of total value of a flat comprises of tax. Echoing similar sentiments, Supertech group CMD R K Arora said that there is nothing for the builders in the budget of current financial year.
"The builders' hopes of some relaxation in the Budget for the realty sector, after two years of recession, have been dashed. The finance minister has offered nothing substantial. Also, there was no discussion on the long pending demand of giving industry status to the real estate," Arora said. Ajit Krishnan of Ernst & Young said, "There isn't much to cheer about for the realty sector in the 2011-12 Budget. Removal of existing MAT exemptions for SEZ developers and SEZ units would have an overall negative impact not only on this sector but also the IT/ITES sector. Extension of Investment Based Deduction for development of Housing Projects under affordable housing scheme is a welcome step."
CMD of Omaxe group and president of developers' association NAREDCO Rohtas Goel said that thrust on low and middle income housing is reflected in the Union Budget. Goel termed the various measures taken a determined and appropriate policy initiative by Pranab Mukherjee.