Narendra Modi government’s interim budget 2019-20 presented on February 01 had nothing interim about it and against convention was packed with welfare schemes and tax sops with an eye on the upcoming elections in April-May.
Text: Sapna Srivastava The multitude of reactions to the interim budget presented by the BJP government pronounced it to be from ‘daylight bribery’ to ‘full-fledged election manifesto’. The budget focused on the farmers, informal sector workers and salaried taxpayers. The real estate sector too received some tax exemptions and benefits that are likely to boost the realty demand. The Bombay Stock Exchange’s real estate index climbed on the announcement of government’s new measures to push affordable housing and home-buying and the proposal to drop tax charges for two years on notional rent with regards to unsold properties of the developers. M Murali, Chairman and Managing Director, Shriram Properties was appreciative of the Government’s top priority to infrastructure and social infrastructure (roof for every one) development that would greatly enable the Indian real estate sector to contribute substantially in terms of job creation and GDP growth and termed it as a very promising interim Budget. Rishi Jain, Managing Director, Jain Group expressing his views said, “It is a well-balanced and very mature budget. The FM has nicely walked the path of fulfilling the BJP election mandate of populist measures without overburdening the economy with mindless doles and subsidies. I half expected more loan waivers and cross-subsidization, but interest subvention is a much prudent measure, clearly, there is great maturity evident in these proposals. The real estate sector has reasons to celebrate even though the measures are purely incremental and not structural. Undoubtedly, the real estate sector is bound to see revival ahead, how much and how quickly is anyone's guess.” Finance Minister’s proposal of allowing almost Rs 20 million investment from capital gains for buying two residential houses, compared with only one at present and waiving tax on the notional rent payable on a second self-occupied house was a major sop for the home owners. The full income tax rebate to small and medium-scale taxpayers is also indirectly a positive for real estate and may drive up housing sales. The benefits under Section 80-IBA of the Income Tax Act is being extended for one more year to the housing projects approved till March 31, 2020, which essentially translates into a 100 per cent deduction of profits to an assessed engaged in developing affordable housing projects. Monu Ratra, CEO, IIFL Home Finance Limited considers the most encouraging proposal of the interim Budget 2019 is the tax rebate on income of up to Rs.5 lac p.a. and also other income tax benefits. “It will definitely revive the sentiments of buyers belonging to affordable housing segment to firm up their property purchase decisions by availing home finance on the strength of enhanced disposable income available to them,” he said
Unresolved Concerns
No actual relief was proposed on one of the major issues of lowering the GST on the purchase of properties though an announcement was made of group of ministers suggesting ways to reduce GST for house buyers. Chintan Sheth, Director, Ashwin Sheth Group stated his disappointment on lack of clarity on single window clearance and GST. “We also expected incentives for first time home buyers which would have helped increase demand and create equilibrium in the demand-supply gap. While this budget focuses on the overall growth of the economy, we will adopt a wait and watch approach and hope adequate measures are taken to complement their continuous endeavours to boost the real estate sector," he expressed.
Also, remained unaddressed in the budget was the non-banking financial corporation deadlock and measures to create stressed fund asset for unfinished projects running into years due to promoters or developers running out of funds. “I am happy that Union Budget has lent a helping hand to the real sector and eased some of the pain points. The extension of benefits under Section 80 (i) BA for housing projects till 31st March 2020 and extension of the period for tax levy on notional rent on the unsold inventory to two years are some of the much required measures to help the developers. However, we were expecting the government to give some kind leeway to home buyers by way of lower interest on home loans, especially for the first time and women buyers, but are disappointed on that front,” said Tanuj Shori, Co-Founder and CEO, Square Yards.
The presentation of a full-fledged budget instead of a vote-on-account that is usually placed before election is a clear message from PM Modi that his confidence is high. But will this help BJP win next election or if it retains power will the government be able to fulfil the resounding promises and direct and indirect tax growth with disinvestment receipts pegged at at Rs 90,000 crore for 2019-20, when, it has struggled to achieve disinvestment target for 2018-19.A Valuable Trailer or a No-value Pitch While, Prime Minister Narendra Modi declares the interim budget as a “trailer” of what will guide India towards prosperity after the Lok Sabha polls. The opposition considers interim budget announcements of zero value as no government in its interim budget can take up full-fledged plans ahead of the Lok Sabha elections. T V Mohandas Pai deems the interim budget a fantastic roadmap that unifies and works towards the aspirations of every individual and segment of India’s demography. For real estate specifically, Shishir Baijal, Chairman & Managing Director, Knight Frank India feels pleased to see that the government has taken note of the issues faced by the real estate sector. “For the demand side, the budget has ensured better liquidity and lower tax burdens on the purchase of homes. For the supply side, the government has taken into consideration the challenge of unsold inventory and has therefore increased the period of exemption for notional tax on unoccupied units.” However, many have pronounced Union Budget 2019-20 as a crowd-pleasing electoral pitch. Delhi based Economist Renu Kohli, cautioned that the expansionary thrust will no doubt lift disposable incomes, counter the slowdown in private spending to some extent and buy goodwill ahead of elections but what it does to interest rates and private investments is another matter.
