Budget to aid flagging affordable home segment, boosts demand with infra push
- The enhanced allocation for PM Awas Yojana is a boost for affordable housing, which was flagging, says
Anuj Puri, chairman of Anarock Group.
- The new tax regime forgoes deductions on housing loans, and cannot be positive for home buying sentiment, says
Akash Pharande, managing director of Pharande Spaces.
- The Budget gave a boost to rail and air infrastructure, which most experts hope will be a catalyst for real estate demand.
AdvertisementThis Budget, the government has given a much expected boost to affordable housing – the only segment in the real estate market that did not gain from the pandemic boom. The finance minister
“This (affordable housing) supply will definitely gain momentum along with the Urban Infrastructure Fund and boost development in the surrounding areas of MMR (Mumbai Metropolitan Region) as well as Tier 2 and Tier 3 cities. Ultimately, this will bring in a good supply of affordable housing and drive up the demand in terms of PMAY, thus overall benefitting the housing sector,” Dhaval Ajmera, director at Ajmera Realty & Infra India told Business Insider India.
According to an Anarock Consumer Sentiment Survey, in 2022, the demand for affordable housing sunk precariously. “The enhanced allocation for PM Awas Yojana is certainly a boost for affordable housing, which was flagging due to increased input costs and also because the buyers in this segment, mostly from the unorganised sector, were still reeling under the impact of the pandemic,” said Anuj Puri, chairman of Anarock Group.
Only 26% of property seekers were looking for ‘budget’ properties that cost below ₹40 lakh, falling from 39% in 2018. All other properties, including premium and others, saw robust demand as well as supply during the year.
“This move will give impetus to affordable housing in the country by providing a better housing subsidy to economically weaker sections and lower-income groups,” said
Deducing the effect of the new tax regime
The finance minister has made the new tax regime very attractive in Budget 2023-24, by doing away with income tax for those earning below ₹7 lakh and reducing the number of tax slabs. However, the new regime which will now also be the default regime, does not provide any deductions for interest paid on housing loans.
“One of the major changes is the introduction of a new tax regime, which offers lower tax rates for individuals who forgo exemptions and deductions. However, this regime also foregoes the previous deductions on housing loans - one of the most popular incentives for middle-class homebuyers. This cannot be seen as positive for homebuying sentiment,” said Akash Pharande, managing director of Pharande Spaces.
On the other hand,
The extra income in the hands of the taxpayers is good news for the realty sector as real estate is generally the preferred investment vehicle.
“Surplus of liquidity in the hands of the taxpayers will aid in more real estate buying because of their preference for real estate over other asset classes. This move will boost the demand and gain momentum for the real estate industry, specifically in the affordable and mid-luxury segments,” says Ajmera.
Luxury homes & capital gains tax
The FM capped the deductions that can be availed on capital gains arising from sale of residential houses at ₹10 crore. That means if a home owner earns over this limit via a home sale, it would be taxed.
This won’t have too much impact, experts say. “The intention is to deter tax exemption for extremely high-value transactions in the residential space. However, we believe that most of the transactions in the luxury segment would fall within the ambit of the ₹10-crore cap,” says Anshuman Magazine, chairman & CEO-India, South-East Asia, Middle East & Africa, CBRE.
For this category of buyers – that’s high-networth individuals (HNIs) and ultra HNIs – there is much to be gained in terms of a 4% reduction in the overall tax rate that was announced in the Budget for the highest tax slab, leaving more liquidity in their hands, Magazine adds.
Pharande too says that while this is a dampener, those buying or upgrading to luxury homes primarily for lifestyle improvement would not be too concerned. “I don't see the negative impact spreading much beyond MMR and Delhi,” he says.
AdvertisementPuri and Pharande say that there is nothing specific in the budget that would boost consumer sentiment towards the sector in a high interest rate regime where housing prices too are on the upswing due to rising input costs.
The Budget gave a boost to infrastructure with announcements like the highest ever railway outlay at ₹2.4 lakh crore; increased regional connectivity via 50 additional airports, helipads, water aero drones and advanced landing grounds – all of which will boost affordable regional connectivity. This, most experts hope, will be a catalyst for real estate demand.
India’s rich to shell out more for luxury cars, global travel but may have more to invest
Budget 2023-24 highlights: Those with income below ₹7 lakh a year need not pay income tax
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