Affordable housing may get significant push: Ramesh Nair, JLL India

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We expect some more such reforms in the Interim Budget. We also expect the government to further incentivise first-time homebuyers and fuel investments in the housing sector.

The regularised real estate sector which has been showing signs of recovery has witnessed an improved business environment in recent times. Sensing the robust pent-up demand, the market has gradually aligned itself to affordable housing – thanks to the government which has until now encouraged the growth of the segment through a slew of measures. As a result, the renewed focus on affordable housing is discernible with over one-third of the total new launches in 2018 in the sub INR 50 lakh price bracket.

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The positive outcome of the demand-side push by way of credit linked subsidy scheme for lower and mid-income households added to the incentives already provided to developers. The segment that has been awarded an infrastructure status got support in the form of 100% deduction on profits along with a dedicated affordable housing fund. With developers realigning their strategies as per market dynamics, these measures have begun to bear fruits now.

While there is a marked increase in supply, there is still a long way ahead to achieve the objective of ‘Housing for All by 2022’.

We expect some more such reforms in the Interim Budget. We also expect the government to further incentivise first-time homebuyers and fuel investments in the housing sector.

Key Expectations:

1. Increase in deduction of interest on home loans u/s 24

An increase in deduction of interest on home loans for self-occupation from the existing INR 2 lakh to INR 3 lakh will mainly benefit buyers in the lower and mid-income category. This is expected to incentivise homebuyers in a scenario of higher interest rates.

2. Restriction on setting off loss from house property against other heads of income at INR 2 lakh to be removed

The Finance Bill, 2017 introduced provisions to restrict the set off of loss from house property against other heads of income to INR 2 lakh during the year. The balance loss, if any can be carried forward and set off against income from house property in the subsequent 8 years. The removal of this restriction will enable the individual to claim the entire interest on his let out property without any limit. This is expected to spur higher investments in the housing sector.

3. Extension of benefit u/s 80EE to avail additional INR 50,000 interest deduction on home loans for first time buyers

This benefit (currently available for home loans sanctioned between April 1, 2016 and March 31, 2017), should be extended beyond March 31, 2017 to further encourage first time home buyers.

4. Extension of approval time to claim 100% tax deduction on profits from affordable housing projects beyond March 2019

In order to increase supply of affordable housing projects, there is a need to extend the timeline for approval of such projects under Section 80IBA. Under this section, developers are eligible for deduction of an amount equal to 100% of profits and gains derived from affordable housing projects. The sub-section (1), which mentions the dateline of March 2019 should be revisited. An extension in the dateline will ensure continued interest of developers to construct affordable housing projects and help in achieving the “Housing for All” objective of the government.

5. Change in income tax slabs in line with Direct Tax Code

The ‘Direct Tax Code’ which will replace the existing Income Tax Act, 1961 aims to widen the tax base and rationalise the tax rates (individuals and corporates) to make it equitable and at par with international standards This will help in simplification of direct tax laws in India by adopting global best practices. It will thus aid in the creation of a more ‘progressive’ tax structure.

6. Separate provision for deduction of ‘principal repayment’ on home loans

A separate provision allowing deduction of principal repayment (currently forming part of 80C deduction) will provide homebuyers higher tax benefits towards the latter stage of the loan tenure.

7. Reduction in holding period of REITs for long-term capital gains

The reduction in holding period from three years to one year while calculating long-term capital gains from REITs will provide a level playing field with competing equity instruments.

Further, the government has constituted a Group of Ministers (GoM) to examine and suggest ways to resolve the issues with respect to the rationalisation of rates and other related aspects of Goods and Services Tax (GST).

[This is an authored article by Ramesh Nair, CEO and Country Head, JLL India. All views, opinions and expressions are personal and limited to the author.]