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Online PR News – 11-June-2012 – Gurgaon / Haryana – Please attribute the given quotes to Samir Jasuja, founder and chief executive officer at PropEquity, a real estate data, analytics and intelligence firm.
Affordable Housing gets a budget boost
• Allowing ECB for low cost housing projects: This budget has given a little boost to affordable housing projects as developers building low cost housing can now raise funds through External Commercial Borrowings (ECBs) from other countries at much lower interest rates, which will partly help their funding woes. However, the ECB nod just for low cost housing projects would not help the realty sector in a big way as most of the existing projects would be outside the ambit of this announcement.
• Continuation of 1 per cent subsidy: The continuation of 1 per cent subsidy on home loans of up to Rs 15 lakh is a welcome move, but the industry was expecting the limit to go higher taking into consideration the inflationary trends prevailing in the country.
• Home loan interest deduction slab: The finance minister did not increase the home loan interest deduction slab from the existing Rs 1.5 lakh. In our view, this is likely to impact the home loan demand especially for the mid-income housing projects. PropEquity study suggests that 45 per cent of all projects in the National Capital Region (NCR), Bangalore Metropolitan Region (BMR) and Mumbai Metropolitan Region (MMR) are still under construction and are facing significant execution delays. One of the key reasons for this is that home loan borrowers were not able to make payments to developers which led to a funding crunch.
• Service tax rate hiked from 10% to 12%: The increase in the service tax rate from 10% to 12% will marginally increase the cost of production for developers, which may be passed on to end users. Around 50 percent of the construction costs like marketing, architects and consultants fee etc. come under the ambit of service tax, and 2 per cent additional hike on it will have a limited impact in the final cost of the flat. However, in the current weak housing market scenario, even a small hike in housing prices may impact demand, especially in the price sensitive affordable housing segment.
• Exemption of capital gains tax: The announcement on exemption of capital gains tax can have a negative imp
• act on real estate as that may lead to cash flowing away from the sector if sale proceeds are invested in subscription in equity of a manufacturing SME for purchase of new plant and machinery. Real estate is already reeling under severe dearth of funding, and this move may further dent the situation. Also the investors risk goes up on its hard earned investments as he will now look to invest in manufacturing SME to save on capital gains tax.
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