2012-13 Union Budget : Pros And Cons for Indian Real Estate Sector

Union Budget : Pros And Cons By Mr. Anuj Puri, JLL India

Our reaction to Union Budget  2012-13 is mixed at best. It seems fair to state that the Indian real estate sector does not have much to cheer about.
Mr. Anuj Puri, JLL India

1% tax rebate for housing loans..!
To begin with, it is difficult to see the raising of the personal income tax exemption limit from Rs 1.8 lakh to Rs. 2 lakh as anything more than tokenism. It is certainly not relevant for the aspiring Indian middle class house buyer. The expected exemption limit of Rs. 3 lakh would have had some significance.

That said, the 1% tax rebate for housing loans of upto Rs.15 lakh on houses costing upto Rs. 25 lakh will prove beneficial for developers in this segment

Residential property from Capital Gains Tax relief..!
Exempting proceeds from the sale of a residential property from Capital Gains tax if they are invested in equity or equipment of an SME (small and medium enterprise)  definitely provides home owners with more reinvestment options. Previously, the only route for exemption was purchase of another property or tax saving bonds. At the same time, this move could also result in a lowering of sales volumes on the secondary sale market.

TDS on Purchase and Sale of Property..!

Tax Deduct at Source (TDS) applicable on the purchase and sale of property will have a moderate impact in the short term. It certainly adds another level of belt-tightening to buyers who are already stretched. However, considering that various economic negatives such as inflation are now being addressed, this impact will be absorbed in the long term.

The increase in the service tax rate from 10% to 12% will increase the cost of production for developers, who are already reeling under high input costs. It follows that this increased burden will be passed on to end users.

ECB for Affordable Housing..!

Allowing External Commercial Borrowing (ECB) for affordable housing is, without doubt, an excellent move. It will ensure better capital availability for developers of low cost homes. This sector is typified by low margins, and it becomes attractive only if developers are enabled to produce greater volumes. Better capital availability will help in timely project execution, which will result in higher volumes.

FDI in multi-brand retail...!

The postponement of a firm decision on FDI in multi-brand retail came as a disappointment. JLL India seem to have missed yet another opportunity to boost the Indian economy by ways of significant foreign capital inflows. On the other hand, the increased spend on warehousing will certainly help the retail real estate sector, since more storage capabilities will help retailers to expand into more cities and towns.

Likewise, the measures to increase funding for highways and other infrastructure will help put more territories on the real estate map.

About the Author..!
Mr. Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India

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