The much-awaited budget 2019-20 is out and along with it, an array of expectations for the future. The Union Budget 2019 is a very encouraging and favorable budget for real estate industry. First time Finance Minister Nirmala Sitharaman presented her maiden Union Budget for 2019-2020 in the Parliament in the month of July. Every year the Union Budget is awaited with a lot of expectations by all stakeholders. The real estate industry has been going through a rough patch recently because of GST, high property acquisition costs, decline in demand for residential units, high interest rates on loans, liquidity crisis, the absence of a systematic and mature market, flighty developers, corruption etc. The developers and buyers hope that the 2019-2020 Union Budget will introduce reforms like tax sops and correction in prices which will benefit and stabilise the industry.
According to India Brand Equity Foundation the sector has a lot of potential as it will reach a market size of $1 trillion by 2030 and add a whopping 13% to the country’s growing economy and GDP by 2025. The real estate sector has benefited immensely with the opening up of FDI which has certainly revived the overall development troposphere. FDI has played a significant role in the development of commercial assets as FDI inflows to the sector in 2017-18 was $1.2 billion and will only move upward in 2019. With RBI now being the regulatory authority for Housing Finance as well, it will lead to easy regulation as all financing sectors would fall under one authority.
Let’s examine the various reforms for the Real Estate sector proposed by the Union Budget:
1. The most important announcement for the sector is the additional deduction of up to Rs.1.5 lakh on interest of home loans. This step has been taken to boost the affordable housing segment. So, a total deduction of up to Rs.3.5 lakh in taxable income will be provided to home loans seekers up to March 31, 2020 to buy property worth up to Rs.45 lakh. This is a welcome move for middle class and first time buyers as it will translate into a benefit of around 7 lakh over their loan period of 15 years.
The additional deduction of Rs.1.5 lakh will be available under these circumstances:
• The loan is sanctioned by the financial institution during the period April, 2019 to March 31, 2020
• The stamp duty value of the new house does not exceed Rs. 45 lakh
• The new house property should be covered in the ‘affordable housing’ category
• The buyer does not own any residential house property on the date of sanctioning of the loan
2. Current Rental Laws are very outdated as they do not address the relationship between Tenants and Landlords realistically and fairly. To tackle this issue, a Model Tenancy Law will be finalized to regulate the renting of premises and will be circulated to all the states. Several reform measures have been proposed to promote rental housing.
Some of them are mentioned below:
• The landowner will be required to give a written notice three months before revising rent.
• The law advocates appointing the District Collector as the Rent Authority.
• Tenants overstaying will have to pay double the rent for two times and four times thereafter.
• The advance security deposit to be paid by the tenant can only be a maximum of two months’ rent.
• States are free to adopt the law owing to land being state subject and if the law is adopted, then they will be required to constitute rent courts and tribunal.
• A landowner will not be allowed to enter the rented premises without 24-hour prior notice to carry out repairs or replacement. Repairs can be undertaken by either of the parties and the amount can be adjusted in the security deposit.
• Also, the landowner cannot cut power and water supply in case of a dispute with the tenant.
3. In the second phase of PMAY-G, during 2019-20 to 2021-22, 1.95 crore houses with amenities like toilets, electricity and LPG connections have been proposed to be provided to the eligible beneficiaries.
4. For the purpose of TDS (Tax Deduction at Source) from payment made for acquisition of real estate property, other miscellaneous charges will also be taken into consideration. The charges include club membership fee, parking charges, electricity and water facility fee, maintenance fee, advance fee or any other charges of a similar nature which are incidental to the purchase of such property.
The below mentioned points are for the affordable housing category-
5. For realisation of the goal of affordable housing, a tax holiday has already been provided on the profits earned by developers of affordable housing. It has been proposed that the term for the tax holiday should be 10 years but discussions are still on for the same. The tax holiday has been proposed for real estate developers to revive investment and boost a slowing economy
6. Under affordable housing, it has been proposed to increase the limit of carpet area from 30 square meters to 60 square meters in metropolitan cities and from 60 square meters to 90 square meters in non-metropolitan cities.
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