Budget Brings Some Bouquets, Some Brickbats For Real Estate Sector

Real estate is a sector which provides the greatest opportunities in case of unskilled labourers. Not surprisingly, it is the most closely watched sector when it comes to budget announcements. This time around, though there have been no direct announcements in the budget for the realty segment, certain indirect announcement have been made.

The first factor is the Rs 6000 crore being allocated for the Rural Housing Fund. We feel that there is a good amount of demand from the rural areas, and this will provide a good impetus to the smaller realty players in the semi-urban and rural areas. However, it should be noted here that hardly any of the smaller players are listed, and hence, there will not be any direct impact from the stock market perspective. However, related sectors like cement, steel and other allied players are expected to be benefitted.Apart from that, the Finance Minister has announced additional deduction of interest up to Rs 1 lakh for a person taking his/her first home loan up to Rs 25 lakh during the period April 1, 2013 to March 31, 2014. He further added that if the limit is not exhausted, the balance may be claimed in 2015-16. The best part is that this deduction will be over and above that of Rs 1.5 lakh allowed for self-occupied properties under the current Section 24 of the Income Tax Act, 1961. This clearly suggests a focus on low cost housing.

In another move, the government has planned to reduce the abatement rates for luxury apartments. Luxury homes for the rich would become more expensive after the Finance Minister reduced the abatement on the service tax availed by real estate developers for homes and flats above 2000 sq. ft. or costing Rs 1 crore and above to 70% from 75% earlier. The majorly affected region will be Mumbai, where the cost of majority of apartments is almost more than Rs 1 crore. The rate of abatement or deduction is used in the calculation of service tax to be paid by the developer. The reduction in abatement will result in higher input cost that will be considered for calculation of service tax.

Overall, the budget announcements are mildly positive for the low cost players in the realty sector. However, larger players have nothing concrete to take home.