Come Union Budget time and speculations go around on possible changes in tax slabs, further measures to boost housing and of course tax sops on home loans. The industry pushes for more tax breaks, especially for affordable housing as this is a huge market that has been largely untapped due to the unfavourable market dynamics.
Benefit for affordable housing
Land costs make affordable housing as a concept just not possible within city areas. However, this budget has addressed the cause of affordable housing, especially with the extension of external commercial borrowing for low cost housing. This makes it possible for developers to get funds at a lower cost for these projects. Also, the extension of the one percent interest subvention scheme for low cost housing is a welcome move for this realty segment.
The huge market for this segment was discovered in late 2008 in the wake of the slowdown when the budgets of prospective homebuyers contracted. Also, the improved connectivity to suburbs thanks to the widened highways opened up large land parcels for development there. The relatively lower cost of land in the suburbs made it possible to tap this market and hence the concept began to catch on.
Given the estimated shortfall of around 30 million houses in urban areas, the concept of budget housing getting a boost is most welcome and timely. In the years ahead, budget housing in major cities as well as tier II and II cities is set to find more demand.
Boost for manufacturing sector
The proposal to offer tax relief on capital gains from sale of a house, if invested in equity in a small or medium scale manufacturing enterprise is good news for property investors. While it gives property investors more options to save capital gains, it also opens up an avenue for the small scale manufacturing sector to raise funds.
More funds for industrial growth translate to more demand for housing in the long run. Growth in industry generates more employment and fuels demand for housing. This initiative is also set to drive more investments in the property sector given the increasing rental returns and capital values across cities.
Rental housing stock
Any boost for property investments is good as it translates to higher residential housing stock in the rental market. With the rapid urbanisation taking place across the country, there is a need for more rental housing to accommodate the influx into cities. With more job options opening up in the cities and hiring picking up, this market also creates opportunities for property investors.
A thrust on affordable housing can lead to more investments in this segment, leading to more inventory for those looking at renting a budget home in the years ahead. Budget housing in the vicinity of industrial belts will get a fillip with the demand on the one hand and tax benefits on the other incentivising both developers and investors.
Source: Times Property in The Times of India