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As announced in the Budget, infrastructure status for affordable housing will be a good thing for the middle class as it will make homes cheaper and spacious. This will be made possible by laws which will make it mandatory for financial institutions to lend to developers of affordable projects – and that too at low rates. Developers will in all likelihood pass on the benefits to homebuyers. Measurements of the housing units have been specified, so expect bigger and better ‘budget’ accommodation

Developers so far reluctant to touch the affordable housing segment despite high demand are likely to be attracted by the easy access to capital at lower (because of affordability) rates and tax incentives. Even big brands will now be encouraged to get into this segment.

The months after June are likely to see a momentum in a market severely impacted by demonetisation. More affordable launches might happen, giving people more investment choices, especially in the Delhi NCR areas. Depending on the location and cost of land, housing units in these projects are roughly estimated to cost anything between Rs 15 lakh to Rs 25 lakh.

Developers can take infrastructure funding from financial institutions at a rate lower than 10% for constructing affordable housing. With borrowing costs going down, the benefit will definitely be passed on to the homebuyers, says Pradeep Aggarwal, co-founder and chairman – Signature Global, a company that already launched 7,000 units in Gurgaon and Sohna under the Haryana affordable housing scheme.

The infrastructure status proposal is likely to impact all projects under construction. Builders are expected to quickly move to comply with the affordability requirements – limiting the size of housing units to 60 sq m (carpet area), developing projects within 25 km of the municipal limits of four metro cities.

“All these projects will now qualify as infrastructure and get easy access to financing. While existing buyers will now be assured of timely completion, new buyers and new launches may receive some relaxation in terms of pricing. Some buyers will also now qualify for the Pradhan Mantri Awas Yojana subsidy,” says Manoj Gaur, managing director, Gaursons India.

Currently most states have their own affordable housing policies. In Haryana, external development charges (EDC) and internal development charges (IDC) are exempt while in Uttar Pradesh EDC/IDC charges, land use charges, service tax and stamp duty charges are waived off. As for housing unit size, don’t expect pigeonholes as the government has clearly specified that instead of built-up area (which includes public space for lifts and corridors in a building) the carpet (wall to wall) area of 30 and 60 sq m would be considered.

The 30 sq m measurement is applicable for affordable housing projects located in the four metro cities while a limit of 60 sq m will apply for projects located within a distance of 25 km from the municipal limits of these four main cities. The demand for affordable homes is likely to increase given the extra cash people will have in hand due to proposed deduction of the income tax rate to 5% for taxpayers earning less than Rs 5 lakh.

Added to this will be the interest subvention of 4% and 3% on loans of up to Rs 9 lakh and Rs 12 lakh, respectively, as announced by the prime minister in his New Year eve’s speech for some people. “The real estate market is likely to see maximum launches in the affordable housing segment. There will also be a structural shift in pricing and not a price cut. The benefits that builders will get under the scheme include a profit tax holiday which means that they will not have to pay tax on the profits earned from these projects. More builders will thus enter this segment. This will ensure that buyers will get more housing options,” says Samantak Das, chief economist and national director – Research, Knight Frank (India) Pvt Ltd.

Developers will also get five years to complete the project instead of three years at present out of which maximum time goes into getting approvals. Getting priority sector lending will get builders more funds at reasonable rates and these benefits they may pass on to the customers,” he says.

To cite an example, if a 60 sq m apartment in Greater Noida today is currently priced at Rs 3,500 per sq ft (around Rs 27 lakh), the same unit under the scheme will now be 30% more spacious (around 800 sq ft with carpet area being taken into account) and cost much less because of the tax holiday benefits being offered to developers.

The government has also extended the time of completion of such projects from three years to five years. Builders who do not complete projects on time will not get the incentives.

 

Source: www.hindustantimes.com

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BENGALURU | MUMBAI | NEW DELHI: Finance Minister Arun Jaitley in his Budget 2017-18 speech has given one of the much needed thrust to the Indian real estate sector. The minister announced that the ‘Affordable Housing’ will be given ‘Infrastructure’ status, which is likely to result in increased participation from private players.

The announcement of affordable housing being given Infrastructure status is a welcome move and will act as a catalyst to meet the objectives of Housing to all by 2022. Credit off-take towards affordable segment of housing will lead to creation of supply especially for both stake holders the first home buyer and developer who will now have access to cheaper funding,” said Ravi Ahuja, Executive Director, Office Services & Investment Sales at Colliers International India.

Jaitley also announced that National Housing Bank will refinance individual loans worth Rs 20,000 crore in 2017-18. “NHB allocation will give a big push to affordable Housing Finance Companies namely AU housing, Gruh Finance, Repco,” said India Ratings.

On the all-important front of personal income tax, the existing tax rate for incomes between Rs. 2.5 lakh to 5 lakh has been reduced to 5%, and taxpayers in other categories will also save Rs. 12,500.

Key highlights for real estate sector in Union Budget 2017:

* Affordable Housing has been given the Infrastructure status

* 1 crore rural houses will be created by 2019

* National Housing Bank to refinance Rs 20,000 crore loans

* Pradhan Mantri Awas Yojana to get Rs 23,000 crore

* Real estate developers to get tax relief on unsold stock as liability to pay capital gains will arise only in the year a project is completed

* Instead of Built up area of 30 and 60 sq meters, the carpet area of 30 and 60 sq meters will be applicable for affordable housing

* Holding period for capital gains tax for immovable property reduced from 3 years to 2 years

* Window for availing 3 year profit-linked incentives for start ups increased to 7 years against 5 years earlier

* Tax break of 1 year post receipt of the completion certificate, for the unsold stock

* New FDI policy under consideration

* No cash transaction above Rs 3 lakh will be allowed

* Rs 2.41 lakh crore has been allocated to boosting infrastructure for transportation

* Indra Awaas Yojana will be extended to 600 districts

* Total allocation for the infrastructure sector is Rs 3,96,135 crore

* Allocation for National Highways to be at Rs 64,000 crore

* No cash transactions above 3 lakh

* Indexation for capital gains shifted from 01-04-81 to 01-04-2001

Here is how the industry player reacted to the announcement made in Union Budget 2017-18:

Joe Verghese, Managing Director, Colliers International India

Considering the impetus being given to road infrastructure, manufacturing and affordable housing, the government have put in all the required ingredients to incentives urban decongestion and the development of new industrial cities around our industrial transport corridors.

Capital gains on Joint Development Agreement to be taxed only at product launch, 1 year tax exemption from notional rental income from unsold inventory and reduction of long term capital gains tax period from 3 to 2 years provide respite to investors/ developers of real estate. This helps especially those holding real estate inventory/ stock. This is a great move to providing tax relief to developers in the residential sector where the sales have significantly dropped post demonetisation move.

Shashank Jain, Executive Director, PwC India

Subsequent announcements on increasing the qualifying unit area and the time frame for completion to 5 years are two great steps, acknowledging the practical and operational aspects. Area was too low to be called a decent unit and 3 years was almost impractical for completion of the project considering there is no separate approval process for affordable housing and one had no certainty of time taken just for approvals!

Milind Kothari. Managing Partner & Head of Direct Tax, BDO India

The move to provide clarity for taxation of Joint Development Agreement to the date of completion of project would provide a great fillip to unlocking land for development and reduce litigation.

Nidhi Seksaria, Advisory Partner & Leader – Real Estate, BDO India LLP

With industry status, banks will be willing to lend more to projects in the affordable housing segment and thus larger access to funds.

Hemal Mehta, Partner, Deloitte Haskins & Sells LLP

Affordable housing is a priority for this Government and it was expected to get an infra status. With the infra status, developers can access foreign funds at a cheaper cost by way of debt and will be a priority lending for banks as well. This should result into a progress in the said sector. Fine prints shall provide higher clarity.

Shrikant Badiga, Director, Phoenix Lifespaces

It’s a good move. Affordable housing should be encouraged under infrastructure which allows ECBs and more number of good companies to venture into affordable housing.

Kishor Pate, CMD, Amit Enterprises Housing Ltd

Affordable housing has finally been given infrastructure status. This will mean cheaper loans for developers of budget housing and significantly boost the Government’s target of Housing for All by 2022. The Affordable housing has seen a significant change in the Government’s existing scheme, with the qualifying size requirements now changed from built-up area to carpet area of 30 sqm and 60 sqm for projects within the municipal limits of the large 4 cities.

Anil Pharande, Chairman, Pharande Spaces

Project completion timelines for affordable residential projects have now been increased to 5 years, which comes as a relief to developers of such housing as it will allow them more time to sell their inventory.

The Government has announced that 250 proposals for electronic manufacturing worth 1.2 lakh crore have rolled in. Obviously, this has a direct potential correlation to employment generation and therefore demand for housing in and around the identified manufacturing nodes.

Rashmi Deshpande, Associate Partner on Real Estate, Khaitan & Co

Low Cost Housing: The criteria for low cost / affordable housing has been changed from built-up area of 30 / 60 sq mtrs to carpet area of 30/60 sq mtrs, thus making the low cost – affordable housing segment more lucrative for the builders and also making the segment more attractive for the buyers. With the change in criteria from built-up area to carpet area, the purchasers get more spacious homes and the builder is able to market the property to a larger segment of buyers.

Also the tax break of 1 year post receipt of the completion certificate, for the unsold stock, gives a slight breather to the builders.

Reduction in Income tax rate for basic slab: Will help broaden the tax net and also increase the disposable income in the hands of the tax payers coming within the category. This, coupled with the incentives on low cost housing and the reduction in interest rates by banks, is likely to promote thrust in the affordable housing segment.

Taxation of Capital Gains of Joint Development Agreement: The budget proposes to change the prevalent practice and has clarified that the landowner entering into a joint development agreement for development of the property, shall be subject to capital gains tax upon completion of the project. This is a significant change, which is much needed, to bring clarity on the aspect and avoid litigation with the department, which was invariably a norm given the current ambiguity.

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Union Finance Minister Arun Jaitley, who announced Union Budget 2017 on Wednesday, has granted infrastructure status to affordable housing. The experts opine that this move is a good boost to real estate/property sector.

Speaking to International Business Times, India, Joe Verghese, Managing Director, Colliers International India, said that the government’s decision will reduce the housing costs. “Granting infrastructure status to affordable housing is an extremely positive step to provide a boost to affordable housing development as well increasing access to capital at lower costs,” Verghese told IBTimes, India.

Granting infrastructure status to affordable housing will provide a boost in volume of construction activity across the country. A good boost to the construction industry that was struggling with reduced number of product launches in real estate in the last couple of years.

Capital gains on JDA to be taxed only at product launch, one year tax exemption from notional rental income from unsold inventory and reduction of long term capital gains tax period from three to two years provide respite to investors/ developers of real estate. This helps especially those holding real estate inventory/ stock. This is a great move to providing tax relief to developers in the residential sector where the sales have significantly dropped post demonetisation move, he added.

Talking about the government’s other plans, Joe Verghese said, The government has gone back to the basics and taking the required steps to strengthen foundations of livelihood, housing, credit, medical care, cleanliness, vocation training and infrastructure targeting the bottom of the pyramid. Rather than having quick fixes, it seems focused on measures that provide long term benefits to the country.

Considering the impetus being given to road infrastructure, manufacturing and affordable housing, the government has put in all the required ingredients to incentivise urban decongestion and the development of new industrial cities around our industrial transport corridors, he added.

Ravi Ahuja, Executive Director, Office Services and Investment Sales at Colliers International India, described this as a welcome move. “The announcement of affordable housing being given infrastructure status is a welcome move and will act as a catalyst to meet the objectives of housing to all by 2022, Ahuja told IBTimes, India.

Credit offtake towards affordable segment of housing will lead to creation of supply specially for both stake holders the first home buyer and developer who will now have access to cheaper funding.

“The government will redefine affordable housing – this is very much required, as we expect the government to make a deliberate decision on defining affordable housing keeping in view the differentiation between Tier 1, 2 and 3 locations / cities across the Indian geographies,” Ahuja added.

Ravi Ahuja also lauded the government’s plans for coastal road development. “The 2,000 km of coastal road development proposal in the budget will impact real estate in these locations positively. Mumbai will particularly gain if the scheme provides an expedition to the coastal road proposal. This will also boost industrial real estate in established and newly proposed industrial corridors. DMIC among other more matured industrial corridors newly established may see demand offtake due to this proposed budget measure, Ahuja said.

The budget put a lot of required emphasis on grassroots investments in the rural areas. The infrastructure status for affordable housing, tax reliefs for the real estate developers and investors are a great move to provide some relief to the residential sector but not enough to boost demand or sales. Efforts to send the signal that taxes rates would be going down are a positive sign though the same in corporate side should have been for all corporates and not just for the small and medium sizes, he added.

Source : http://www.ibtimes.co.in/