What the Union Budget 2019 means to the Real Estate Sector

Union Budget 2019

In this post: We analyze the Union Budget 2019 from the real estate perspective and see what the sector has gained, lost, and what could have been. Our team of experienced content analysts works through the week to present the most interesting and relevant content for home buyers, developers, investors and the curious minded. Do bookmark this blog for quick reads about the housing market. So, let’s get the ball rolling.

Let us address the elephant in the room, to begin with: The General Elections 2019. The Union Budget will always try and serve each earning class in the election year, not surprisingly, but nothing to frown upon either. While some quarters of the population feel that the stagnant real estate sector is ripe for major, cutting-edge reforms which would help both the suppliers and consumers benefit in the short as well as long term. But, how impactful was this year’s budget?

The State of the Real Estate Sector prior to the Budget

The sector was on, what looked like a perennial downward slope due to many reasons, some among them being; unfinished housing due to lack of capital, lack of supply of ready-to-move-in housing to boost sales, the introduction of GST and RERA in the recent past drove performance down.

This is not necessarily bad. It is good that state governments (not all) are pushing RERA progressively to bring in some much-needed discipline and transparency in the market. And also, with the talk of GST being exempted for completed housing boosted our morale of expecting interesting reforms from the Union Budget 2019.

So, what did the Home Buyers and Developers get in the Union Budget 2019?

This budget was designed to woo people to invest in their second homes and offers some relief to affordable housing developers via tax rebates.

For Owners of Multiple Houses

There is some relief for people who own up to two houses. The owners get an exemption from paying tax on notional rent if the second house is occupied by family members.

Some developers believe that exemption from notional rent allows families to save and may motivate single homeowners to look at real estate as an investment destination.

TDS on Rent – Range extended

The TDS (tax deducted at source) on rent earned is extended from INR 180,000 to INR 240,000 in the affordable housing market.

This move comes as a relief to small taxpayers and small scale landlords and may also encourage demand uptick in the affordable housing market.

Rollover Capital Gains

The government has also proposed rollover of capital gains up to Rs 2 crore towards buying (investing) two houses. This is in comparison to buying only one under the present rule.

Now, you can invest the capital gains of up to INR 2 Crores in two houses. Earlier one could invest the capital gains on only one housing unit.

The rollover benefit can be earned once in a lifetime under Section 54 of the Income Tax Act. Therefore, it will attract many individuals to purchase more than one house, thus driving up real estate sales.

Non-Taxable Income Bracket extended

The real estate sector was not exactly the target for this. However, extending the taxable income bracket for up to INR 500,000/year will surely encourage some to invest additional savings somewhere. And the hope is that it will be in real estate.

The government in its interim budget proposed to give a full income tax rebate to people with net taxable income up to Rs 5 lakh.

Housing Developers to get Tax Benefits

Projects under Section 80-IBA will offer 100 percent deduction of profits to an assessee engaged in developing affordable housing projects.

What the Union Budget 2019 missed or didn’t address

  • It missed a clear stance on the investigation and trouble in the Non-banking Financial Corporations (NBFC) deadlock. The major issue developers face to complete their projects is capital. Thus, this should have been one of the top concerns. The state banks have been very tight on lending money to incomplete projects. NBFC was and is still today a major source of capital for developers.
  • No relief or even a sniff of reform for homebuyers who are waiting for the completion of their homes. Many homebuyers in the country are unhappy over unfinished projects running into years due to developers running out of funds. This went amiss too.
  • There was a lot of talk about introducing some GST relief on property purchases, especially in the ready-to-move-in housing segment. However, we can see that the budget failed to deliver an immediate solution to this as well. Anyhow, let’s hope for a positive decision in this soon