The Indian real estate sector is one of the major employers, GDP contributors and like for most other countries, an important part of the business cycle. The Modi government has long promoted the motto ‘Housing For All by 2022’. They sure have been working towards this. The RERA act that came into effect from 1st May,2017 is a huge step in this direction.
The 2017 budget was well talked about but it did lack in giving the real estate sector, especially housing sector, a boost in the form of [policy changes. With the 2018 budget just weeks ahead of us, many expectations in this regard can be made. Home Buyers, here are some things to expect from the budget of 2018.
Lower Interest rates: The Indian home loan interest rates are way higher than those of developed economies and will continue to remain so even after a 200 basis points reduction. Although rates are lower for loans up to Rs 12 lakh, this figure should increase to be able to benefit a larger portion of the society.
Tax incentive for 1st time home buyers: A provision was made last year that would give first time home buyers, whose loans a re sanctioned in the financial year of 2016-17 and whose property value doesn’t exceed Rs 50 lakh, a tax rebate of Rs 50,000. This, however should increase in therms of the home value threshold and an extension in the period in which the loan is taken. This will majorly aid home buyers in tier 1 cities where prices are significantly higher.
Tax savings: Apart from first time home buyers, other home buyers must also expect increased tax rebate. The Finance Act of 2017 restricted the value to Rs 2 lakh. However, thus threshold can be increased to Rs 3 lakh for further incentive. This move will also give a boost to the banking sector with an increased availability of funds. This will also allow buyers to set off a larger value of house property against other income.
Tax deduction on pre-construction interest: Currently, Interest paid during the construction of the project can be deducted within 5 years from the end of that financial year, provided the project has been completed. Construction delays are common and buyers loose out on tax deductions without reason. Effective implementation of RERA and its effectiveness in enabling the projects to complete within a stipulated time period is still a question. However, currently either an increase in the number of years from 5 or allowance for tax deduction while the construction is going on must be allowed.
Reduction in GST: The current GST rate on home loans is 12%, much higher than a combined total of the previous 5 % VAT and 3.5% service tax. This tax has made home purchase difficult and added to the slowdown in the housing market that occurred post demonetization. A reduction in GST to 5% will bring housing prices down and help stimulate demand. Further, this will lead to a demand for credit and positively affect the banking and insurance industry.
Stamp Duty Costs: Apart from indirect taxes, and now GST, stamp duty is another major expense while purchasing a property. It varies by states but is anywhere between 5-6 % of the property value. Stamp duty, along with GST adds up to an additional 18% (approximately) in the home value. If reduced and made standardized throughout the country, stamp duty price difference will not hinder state growths anymore. It will become a market based on other factors than just taxes and government duty. This to will promote reduction in prices and therefor increased demand.
Not all of the following will necessarily be seen in the budget of 2018, but some of them can be expected. A net result of the same would be increasing housing affordability and stimulating demand through various tax deductions and other rate cuts. So home buyers, wait until the budget to take your decisions and other, start looking for homes to buy.