Measures such as infrastructure status for the affordable housing segment, tax benefits for developers and changes proposed in the long term capital gains tax are likely to boost the confidence of both investors and consumers, while augmenting transaction activity in the sector.
With the affordable housing segment finally getting the long-awaited infrastructure status, this is an important step to promote access to priority lending thereby, spurring supply of low-cost housing units across various cities in India. Relaxation in area measurement coupled with completion timelines to seek tax exemption are welcome steps for the industry. Further, the government has also increased allocation under the PMAY scheme. This will encourage home buyers and further boost participation from the private players.
In line with the last Union Budget, the main focus of the current budget continued to be on infrastructure development with a cohesive emphasis on rural infrastructure and rail development. Steps such as amendment of the Airport Authority of India Act to enable monetization of assets, development of airports under the PPP model, a new metro rail policy and the passage of an Act for dispute resolution in PPP infrastructure projects are expected to encourage private sector involvement in urban infrastructure creation. This will further enhance infrastructure availability in urban centers, thereby having direct fallout on real estate development. Finance Minister has announced abolition of FIPB in order to encourage greater fund flows into the economy. However, the clear policy outline has not been finalized but this will be a positive step to liberalize FDI policy framework and ease regulatory hurdles in attracting investments.
Relief of 5% for assesses in the lower tax brackets is likely to result in greater tax inclusion and widening of the tax base, besides increasing the in hand disposable income of individuals. This will be a positive change, leading to an increased consumption and boosting demand for real estate as well.
Furthermore, the proposed changes within the capital gains tax will lead to an overall increase in transactions in the sector by easing the exit mechanism coupled with reducing holding periods. Small medium entrepreneurs and startups are also likely to benefit from the tax rebates, leading to more investments and employment in these sectors.
The Union Budget 2017 augurs well for the real estate sector, with segments such as housing, investments and logistics expected to benefit from the proposed provisions. The Government has been accommodative of the concerns of the real estate sector. The relaxation on long term capital gains, joint development agreements, tax rebates for builders will help reduce their tax liability.
Overall, the budget has been all encompassing and in addition to the above, has pledged relief for rural India, middle class taxpayers and small and medium-sized companies. With this, the Government has further strengthened its agenda of stimulating growth, providing relief to middle class, affordable housing, curbing black money, promoting digital economy, transparency of political funding and simplification of tax administration.