MUMBAI, Nov 12 (BNC Network) -Giving a major boost to residential real demand amidst the ongoing festivities, Union Finance Minister Nirmala Sitharaman today announced income tax relief for developers and homebuyers. The increase in the differential between circle rates and agreement value - from 10% to 20% (under Section 43CA) – is indeed a good move. This limited-period offer (up to 30 June 2021) will benefit both developers and homebuyers, said Anuj Puri, Chairman – ANAROCK Property Consultants.
For homebuyers, it is a clear added financial benefit to round off the existing offers and discounts. Additionally, the consequential relief up to 20% to buyers of these units under Section 56(2)(x) of the IT Act for the said period will definitely boost demand, especially in the affordable and mid segments, he said.
For developers, this move will help clear unsold stock. As per ANAROCK Research, there are approx. 5.45 lakh unsold units across the top 7 cities priced up to INR 1.5 Crore while another 49,290 units priced between INR 1.5 Cr to INR 2.5 Cr.
The additional outlay of INR 18,000 crore for PM Awas Yojana (PMAY – Urban) is another welcome step towards fulfilling its vision of Housing for All by 2022. The additional outlay is over and above INR 8,000 crores already spent this year. It will help 12 lakh houses to be grounded and 18 lakh houses to be completed. This will help bridge the housing gap in the country to a good extent and is simultaneously an excellent economic growth driver by creating more employment, Puri explained.
Five years after the implementation of this ambitious scheme, Pradhan Mantri Awas Yojana (Urban) has made steady progress across states. As of August 2020, a total of 1.06 crore homes had already been sanctioned in the country, of which 33% or approx. 35.18 lakh homes are completed while another 66.23 lakh units have been grounded for construction, the Anarock chief said.
Ram Naik, Executive Director, The Guardians Real Estate Advisory felt that the FM’s announcement of an increase in difference between the s- called circle rates and the agreement value, will lead to further rationalisation of prices in the sector, especially in the premium or mid-income housing segment. While it is applicable only for units priced lesser than 2 crores it will help developers in the primary market get an upper hand vis-a-vis the secondary market.
The move can be attributed to the concerns raised by developers about their inability to reduce or offer lucrative prices because of the tax liability that would accrue as a result of price reductions, Naik said.
But, he said, the major part of the unsold inventory in metro cities is upwards of Rs.2 crores in the Rs.4.75 to Rs.12 crore range. A blanket announcement without the capping would have led to cheers for developers across the sector and the customers, this Diwali, he opined.
“Differential above 10 per cent between circle rates and agreement value translates into tax penalties under Section 43CA of the Income Tax Act. This has been a major stumbling block for price rationalization,” said Dr. Niranjan Hiranandani, President, NAREDCO and Assocham.
“This pinches, especially when it comes to liquidating unsold inventory. Industry bodies like NAREDCO have been pointing out the urgency with which this needs to be sorted out, and the Hon’ble Finance Minister, in a limited-period offer (up to 30 June 2021), has enhanced this differential from 10 to 20 per cent. This is welcome. The FM also mentioned a cap on the flat value to be eligible for this - Rs. 2 crore. This will result in most projects in Metro Cities not being able to take advantage of this, it has consistently been pointed out by industry bodies that price points in Metro Cities need to be kept in mind while offering any such relaxation,” Hiranandani pointed out. He went on to add that the ideal situation would have been one where this relaxation would be applicable to commercial real estate transactions as well. “Real estate as an industry and end-users, both would benefit if these two suggestions can be incorporated,” he said.
Funding issues have been a major challenge for real estate, he said and felt that Sitharaman’s announcement, about additional funding of Rs. 18,000 crore for PM Awaas Yojana-Urban will add to the sparkle this festive season. This is over and above the Rs 8,000 already allotted this year, and will translate into more homes for home seekers, more employment opportunities as also good business for suppliers and industries peripheral to real estate and construction, he added.
Bhushan Nemlekar Director, Sumit Woods Limited, said the step is the right direction. Looking at the current market condition, many developers with ready inventory will be able to sell as the prices have actually been corrected in large parts of urban areas in India, he said expressed the hope to see improvement in sales in the next one year. “The income tax incentive will stimulate demand for buying homes. This is a welcome move and we are optimistic that the Government will introduce more proactive steps for giving additional relief to boost the real estate industry," Nemlekar said.