Post Budget Analysis - Realty Sector

Need More Sops

The realty sector is the one which was suffering from paralyses on account higher interest rates and tight liquidity situation resulting in lower sales volume. There was some amount of reduction in realisations also. In that sense the realty sector wanted a good amount of sops. However the government has not provided anything special in the budget.

There are few pockets where the sector got a passing reference.

Like the raising of exemption limit to Rs 2 lakh is a welcome sign in such times of high inflation. But whether this results into the demand for housing is still a question mark.

ECB Allowed in Affordable Housing – Positive

Some amount of reference has been made in term of affordable housing. The allowance of external commercial borrowings (ECB) for low cost affordable housing projects will lower interest cost for developers.

Liquidity Easing – Positive

Another positive came in terms of liquidity easing In order to ease liquidity, the Government has also reduced Withholding tax on ECBs for affordable housing from 20% to 5% for 3 years. Besides, 1% interest rate subsidy provided last year for loans towards affordable housing continues this year.

The increased limit of bonds from HUDCO and National Housing Bank is a positive for the sector. However the effect of the same will take some time to make some impact.

Extend the scheme of interest subvention of 1 per cent on housing loan up to Rs 15 lakh where the cost of the house does not exceed Rs 25 lakh for another year. This will also boost the housing in the Tier III cities and rural areas. The move will also help the housing finance companies like Gruh Finance, Deewan Housing and GIC Housing Finance who operate in the Tier III Cities.

Increase in Service Tax- Negative

However, what nullifies the above positivity is an increase in service tax and excise duty to 12 per cent each resulting in an increase in cost of raw material.

On the above Pranab Datta, (Vice Chairman & Managing Director, Knight Frank India), Said “Overall this budget does not have much to look forward to. With reference to the real estate sector, there is an absence of any intent to address the issues concerning the sector. High property prices and low demand coupled with tight lending scenario has further postponed the ambition of owning a house. Amongst other challenges for the sector, unprecedented rise in urbanization is a challenge as well as an opportunity; however, the lack of road map will prolong the problems of the urban centers”. He further added having said that, the residential segment has got some attention in terms of fund allocation to rural housing and ECB window for affordable housing projects. Higher allocation for infrastructure and rural oriented scheme should have a positive cascading effect on the economy. Thankfully, residential leases have been kept out of the ambit of service tax.”

Over all there are not many triggers for the real estate sector in the budget and hence the budget is a neutral one for the sector.