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05 Jun 2023, Edition - 2883, Monday

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Real Estate, a major indicator of economy



The real estate sector in every economy is a major indicator of how the economy is faring as well as being a big employment generator both in the organized and unorganized sectors. The Indian Real Estate sector has been showing signs of considerable slow down over the past few years. There were many expectations for the real estate sector from the Union Budget 2016. One must however, also remember that while the sector is controlled by the central government, it is the state’s laws, rules and regulations that affect it more. The provisions of the budget do intend to give a fillip to the Real Estate sector in myriad ways.

The major thrust of this budget has been pro poor and in keeping with that thrust, the strategy has been to make housing more affordable for the masses. First time homebuyers will now get an additional interest deduction of Rs.50,000 per annum for loans of up to Rs.35 Lakhs, provided the cost of the house does not exceed Rs.50 Lakhs. This proves to a boon to first time homebuyers and offers substantial tax savings. The Finance Minister has also provided for Service Tax exemption on construction of affordable houses of up to 30 square meters in metropolitan cities and 60 square metres in other cities. This goes a long way in addressing the need for affordable housing in urban areas. The developer of such projects may also claim a 100% deduction on profits. However, this would apply only to projects approved between June 2016 and March 2019 and completed within 3 years.

Another positive fall out of the budgetary provisions is the that REITs will no longer be subject to dividend distribution tax and this makes affordable housing a reality. Further relief has been provided through an excise duty exemption on concrete mix. This rationalized the tax system since till date only concrete manufactured at site was exempt and readymade concrete was not.

As always, the devil is in the details and amongst all these boosters we really need to analyse what is doable and measurable and how much of these benefits will reach the intended recipients. While the area of construction has been defined as 30 square metres in metros or 60 square meters elsewhere, it is not clear whether the finance minister meant this to be plinth area or carpet area. Additionally the time line of three years for the projects may turn out to be a little tight as typically, various approvals are handled by state and local bodies and require considerable time. This aside, however, once sees strong possibilities for growth in the Real Estate sector with housing becoming more affordable. The common man now has a chance to fulfil his dream of owning a home, without having to dig too deep for resources. The objectives of the government as projected through the budgetary provisions for real estate are laudable. Only time will tell whether these objectives are achieved and if so, at what cost.

G.Karthikeyan chartered accountant from Coimbatore.

Disclaimer: The views expressed above are the author’s own

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