It was virtually an election manifesto rolled out through the interim budget. As anticipated the incumbent government took the opportunity to present the vote on account to narrate the last 5 years’ performance and the roadmap for next 10 years. As expected, the Budget, ahead of the generalelections,was presented with an eye on vote bank. It concentrated mainly on rural India, urban middle class and hitherto neglected segment, that is, unorganised labour class. The makeshift Finance Minister, Piyush Goyal, announced an income support scheme for small and marginal farmers (under two hectares of land)which is certainly superior to price support in the form of minimum support price, fertiliser subsidy, etc.& loan waivers because it doesn’t distort market prices or spoil credit culture. The FM has also assured that first of the three instalments of the income support scheme will be given in the current financial year itself.
One of the highlights of the Interim Budget, apart from being lengthy, it contains the 10 most important dimensions that it has identified as part of its Vision 2030. The first of the ten vision statements mentioned by the Finance Minister is the development of physical as well as social infrastructure.
Real estate sector need to be the happiest among the lot as the budget has mentioned several steps which in the medium term are likely to help the sector to get back on growth track. As JLL mentioned “It has addressed both the demand and the supply side of the sector.”
In the interim budget the Finance Minister has proposed the rollover of capital gains benefit which was earlier restricted to one house to two houses, upto Rs 2 crore. This is likely to boost sales in both primary and secondary markets for real estate. This will incentivize genuine homebuyers and investors to buy new properties. This step may improve the sales of low priced units as investors would look to deploy capital gains in mid-segment/affordable housing units.
Further, the proposal of increasing the number of self-occupied properties from earlier one house to two houses now will augment the house purchase decision for people supporting families in another city/town. Doubling of income tax exemption limit to Rs five lakhs and also increased standard deduction will result in increased liquidity in the people’s pocket which may also be used for property buying, home improvement, etc. Part of this is also likely to be diverted for buying consumer durables like air conditioners, etc and furniture.
Realtors should be happy about the interim budget for another reason also. In the interim budget, the FM has increased the period of exemption for notional tax on unoccupied units from the prevalent 1 year to 2 years. This is a welcome move and will benefit the housing sector, as currently there are more than 6.73 lakh unsold units across the top 7 cities. In another welcome move, the government has extended the benefits Under Section 80 (IBA) for one more year till 31st March 2020 which will provide further boost to the affordable housing.
It is in general believed that the real estate sector, to regain its past growth momentum needs to woo the long-term investors into the residential market. Some of the proposals announced in the interim budget are designed to win back the long-term investors. Re-introduction of the home loan benefit on second home buyers is a welcome move which has been appreciated by the leading realtors.
As expected, the Finance Minister in his budget speech which spanned nearly two hours, has reiterated the government’s commitment to consider a revision on GST implications on the real estate sector by mentioning that a special committee is reviewing the same. It may be recalled here that a 7-Member Group of Ministers (GOM) was constituted a few weeks ago for boosting Real Estate Sector under GST regime. Key points of discussion on composite GST vs other schemes; status of GST applicability on TDR; bringing land under GST (currently not part of GST) are the issues being considered by the GoM and its inputs will greatly influence the future course of real estate sector, at least in short to medium term.
However, allocation under Credit linked subsidy scheme (CLSS) has declined by 47%. It should be noted that CLSS provides interest subvention for economically weak segment, low income group and mid income group. In the interim budget, allocation has been cut from Rs 1900 crore in FY19 to Rs 1,000 crore in FY20. Reduction in allocation could lead to lower sanctioning of loans based on government backed subvention schemes.
However, it should be noted that this is just an interim budget, a statement of intent and its implementation is ensured only when these proposals are included in the main budget which will be presented after the general elections. But there are good reasons to be optimistic on this score. If the present coalition gets re-elected then it will have no option but to carry out whatever promised in the interim budget. On the other hand, if the new party comes into power, they have to either carry out the promises made in the interim budget or have to go one step further and should show more populistic instincts than the present government. Any dilution on populism in the full budget may invite the wrath of the public at large.