Housing for poor in Budget 2017-18
Though devoid of any big bang announcements and not pandering to populism, this year’s budget is fairly balanced, positive and progressive budget that aims to revive the fledgling real estate and housing sector and put it firmly on the path of sustained growth.
In line with Modi government’s reformist approach to boost the real estate and housing sectors that hold key to the GDP growth, the budget has provided a big push to these sectors through a number of initiatives, especially focused on affordable and low-cost housing with a view to meet the objective of ‘Housing for All’ programme. Pradhan Mantri Awas Yojana,(PMAY)is the biggest beneficiary of budget allocation with 39 percent hike in allocation totaling Rs 29000 crore. Keeping in view government’s pro- poor approach, the hike for rural housing is even more steep at 44 percent. Under PMAY, there is a target to build 2 crore urban and 1 crore rural houses and in order to meet this target, the budget has made an allocation of Rs 23000 crore which is 8000 crore higher than last year. The provision of additional refinance of Rs 20000 crore has been made to National Housing Bank, in order to boost the housing stock.
The biggest game changing initiative on the housing front in this budget is to provide infrastructure status to affordable housing. Rightly so, as the highest shortage of housing is in affordable and low cost category. Moreover, the government realizes it well that the ongoing recession in real estate, particularly in residential real estate, has a lot to do with liquidity crunch being faced by the sector. The government’s initiative to recognise affordable housing at par with infrastructure, will open gates for cheaper domestic and international finance. The abolition of Foreign Investment Promotion Board (FIPB) will not only promote ease of doing business but also streamline and boost FDI inflows which touched 1.45 lakh crore mark in the first of half of FY 2016-17, in contrast to Rs 1.07 lakh crore in 2015-16. All this will boost the supply of housing. And since infrastructure plays a big role in providing a fillip to real estate and the overall economy, the budget has made a record provision of Rs 3.96 lakh crore for infrastructure- 25 percent more than the last year, with budgetary support for highways hiked to Rs 64000 crore.
The 2017-18 budget can also be dubbed as a landmark budget from the point of view of property consumers. The budget taxes the affluent and rewards the honest tax payers by way of big personal income tax relief for the lower middle class by halving the tax on yearly income of 2.5- 5 lakh, besides raising IT limit to 3 lakh. Moreover, budget provisions discourage speculative buying by High Net-worth Individuals and on the contrary encourage genuine end- user buying of affordable homes. And for that under PMAY, the government has already announced interest subvention of 4 percent on home loan up to 9 lakh and 3 percent on home loan of up to 12 lakh. The loan tenure under CLSS (Credit Linked Subsidy Scheme) has also been extended from 15- 20 years. Further, to bring more people under affordable housing scheme, the government, in this budget, has changed the eligibility criteria of home size (30sq mts or 300 sq ft- 60 sq mts or 600 sq ft) from built up area to carpet area. Now, effectively homes with sizes up to about 800 sqft, will fall under the affordable housing category. The government has also provided tax relief on home sales by bringing down the capital gains on sale of property, by changing the base year from 1981 to 2001 and increasing the fair value of assets. It has given further relief by bringing down the holding period for long-term capital gains from 3 years to 2 years by changing the base year.
By giving big boost to real estate, housing and infrastructure which are big job creators, the government has tried to negate the criticism that it is following the course of job- led growth. While the tax bonanza for small firms, is aimed at creating jobs, proposal to enhance MNREGA allocation to record Rs 48000 crore will provide greater rural employment. Further, the 38 percent increase in allocation for skill development to Rs 3000 crore, is meant to give a boost to Centre’s ambitious plan of creating 10 crore jobs by 2022.
The entire focus of the budget is in line with government’s policy of enhancing affordability. It may be mentioned that during UPA government, the home prices had shot up to an extent that these were beyond the reach of ordinary people. But ever since the NDA government came to power, it focused on checking artificial inflation of property prices and making homes affordable to masses. Together with an attempt to bring down home prices, the government is also making efforts to make available cheaper home loans for home buyers. The budget has several provisions to improve liquidity of banks. There are tax breaks and incentives for home loan. Also the push to digitization, and ban on cash transactions above 3 lakh, will help give a fillip to low cost bank deposits, thereby bringing down cost of funds. In fact, all the pro- housing policy measures will help reduce demand- supply gap, which in turn will make homes more affordable.
Though this budget scores on macro economic stability, yet it falls short of providing any immediate impetus to consumer spending to kick start private investment cycle. Though the budget institutionalizes the dispute resolution mechanism for infrastructure to help speed up projects, yet the critical issue of single window clearances has not been addressed. However, on the whole, the budget has lived up to the hopes of industry while reiterating Modi government’s commitment to reform real estate to make it more affordable for the masses while at the same time develop it as an attractive asset class for investors.
*Delhi based senior journalist. Regularly writes for major dailies on real estate and infrastructural issues.