Budget 2010 mixed for realty, boost for affordable housing
Date:2010-02-26
Description:
In a move to boost affordable housing, Finance Minister Pranab Mukherjee has proposed an extension of the 1% interest subsidy scheme to March 2011. The government had introduced this scheme in the last Budget to promote low-cost housing. Under this scheme, borrowers will be given a 1% subsidy on the first 12 equated monthly instalments (EMIs) to be paid to banks.
Allocation for slum redevelopment has been increased to Rs 1,270 crore.
However, excise duty on cement, clinker -- a crucial input -- has been hiked from the current 8% to 10%. This is a partial roll-back of the excise duty relief on cement, cement products.
In nutshell, Budget 2010 has been neutral and could come as a dampener to a sector which is gradually limping back with new projects being launched and improved liquidity on the back of qualified institutional placements (QIP) and proposed public issues.
The recovery has largely been led by the residential segment with prices rising 5-25% across India. The commercial leasing segment has also been witnessing signs of recovery, even as the retail segment continues to languish. Banks are also offering aggressive mortgage rates, but rates are likely to increase by 0.5%-1% over the next six months on inflationary concerns.
Moreover, the Budget was silent on the sector's demand for cheaper capital, and faster project clearances.
Sector/Stock impact:
- Interest subvention for low-cost housing positive for HDIL and Parsvnath.
What the sector expected?
- Realty companies sought an extension of tax benefits under section 80IB. Under this, a tax holiday is awarded to developers building houses of less than or up to 1,000 sq ft. The deadline for completion of projects under 80IB is March 2012 and builders want it extended to March 2014. The companies likely to benefit from this extension include DLF, Unitech, HDIL, Sobha Developers, and Jaiprakash Associates. This isn’t likely to be approved as government would like developers to expedite construction of such projects
- Sought higher deduction on interest paid on housing loans from Rs 1.5 lakh to Rs 2 lakh per year. The move is likely to benefit companies like Unitech, Parsvnath, and Ansal Properties. Companies are also seeking a separate deduction up to Rs 200,000 for repayment of principal portion of housing loan for self-occupied residential property.
- Infrastructure status sought for integrated townships and group housing projects. Companies could get a 10-year tax holiday and the move, if implemented, would benefit DLF, Unitech, and Indiabulls Realty.
- Firms sought a greater thrust on public-private partnership projects in housing. The move would benefit DLF, Unitech, HDIL, Akruti City, and DB Realty.
- Higher allotment under Rajiv Gandhi Awas Yojana.
- Sought appointment of a regulator. Experts feel the move is negative in the short-term but on the whole is positive and will help attract investors to the sector in the long-term.
- Extension of tax holiday for industrial parks under section 80IA to March 2015 as during the slowdown in 2008–2009 there were certain delays in the execution of the projects.
- Exclude transfer of immovable property from income from other sources
- Permit external commercial borrowing (ECB) for funding construction costs of real estate projects, at least for projects qualifying for 100% FDI as per Press Note 2.
- Lower and uniform stamp duty rates
- Allow the functioning of real estate investment trusts in the country. This move become a new source of funding for the real estate industry and promote housing and commercial developments on a large scale.
- Increase in the floor space index, especially in cities like Mumbai from the current 2.5-3. Currently, cities like Mumbai have a very limited scope of horizontal growth due to limited availability of land. Increasing the permissible level of FSI will increase scope of vertical development. It will also help to bring down the skyrocketing prices to some extent.
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