Budget announcements set to boost India’s residential property market

India’s residential real estate market is set to see a boost with moves that will increase the supply of properties for sale and demand.

Experts point out that change announced in the 2016/2017 Union Budget will see a reduction for first time buyers of INR 50,000 on interest repayment for loans up to INR 35 lakh where the cost of a house is INR 50 lakh and this will boost the demand for housing at the lower end of the market.

This move is also likely to benefit purchasers in tier II and tier III towns such as Surat, Nagpur, Lucknow, Vadodara, Jaipur, Pimpri-Chinchwad, Indore, Chandigarh, Gurgaon, Rajkot, Bhopal, Kanpur, and Thane, according to Shishir Baijal, chairman and managing director of Knight Frank India.

On the supply side, a 100% tax exemption on profit for developers and an exemption from service tax for the construction of houses up to 325 square feet in metro areas and 650 square feet in other cities will encourage supply in the affordable housing segment.

The budget has also increased the limit of deduction of rent paid under section 80GG which provides for deduction of house rent paid, provided that a deduction for payment of House Rent has not been claimed under any other section of the Income Tax Act, from INR 24,000 per annum to INR 60,000 per annum, thus providing relief to those who live in rented houses.

For investors, the abolition of the dividend tax (DDT) means that there will be no barrier to launching REIT schemes. ‘Removal of REITs from DDT will also make this type of investment more appealing to retail investors. In the long run higher transparency levels will ensure that the cash strapped real estate sector will get easier access to funds at a reasonable cost,’ said Baijal.

A focus on improving infrastructure and rural development is also expected to give a much needed fillip to the real estate sector. This includes a significant outlay on improving roads, railways and developing smaller airports to improve regional connectivity. Additionally, incentives to MSME, Make-in-India will get a further boost that will benefit the real estate sector in the long run.

‘Additionally, the government’s focus on digitization of land records is a step in the right direction, especially in more rural areas. The move will also lead to higher transparency levels in the real estate sector,’ Baijal added.

There is also likely to be more demand from overseas investors with the forthcoming Indian Property Show in London in April expected to be well attended by Indian expats seeking to invest in real estate.

They are expected to be interested in smart gated communities which are being developed in major cities such as Delhi NCR, Mumbai, Hyderabad, Chennai, Bangalore, Pune and Kolkata.

According to Srividya Rajan, general manager for sales and brand engagement at Sumansa Exhibitions, the Indian Property Market is affordable compared to other international investment destinations and capital appreciation on real estate in India is far higher in the long term.