Budget 2016 will boost demand for affordable homes

Homes up to 30 sq metres in metro cities and 60 sq metres in other cities which fall in the affordable segment make up for 90% of the demand for houses in India. Several announcements in the Budget 2016 are likely to stimulate growth in demand for affordable housing.

Real estate experts say the exemption for affordable housing would bring in a 15-20 per cent upside on profits after paying the MAT tax for a developer constructing such a project, making it easier for the developer to attract foreign and domestic investment for housing projects.

“100 per cent deduction for profits to an undertaking in housing project for flats up to 30 sq. metres in four metro cities and 60 sq. metres in other cities approved during June 2016 to March 2019 and completed in three years.  MAT to apply,” finance minister Arun Jaitley announced in the budget, adding that “construction of affordable houses up to 60 square metres under any scheme of the Central or State Government including PPP Schemes will be exempt from service tax.”

First time home buyers will get deduction for additional interest of Rs 50,000 per annum for loans up to Rs 35 lakh sanctioned in 2016-17, where the cost of the property does not exceed Rs 50 lakh. This will encourage developers to reorganize funds into building more houses in the affordable segment.

Further, Jaitley has addressed one of the painpoints of the real estate industry by extending excise duty exemption, presently available to concrete mix manufactured at site for use in construction work, to ready mix concrete as well.

Shishir Baijal, managing director of property consultancy Knight Frank India says the realty sector will get a push from both supply and demand side. The FM has announced steps to address concerns from the supply side in housing to spur construction activity and employment connected to it.

To provide relief to persons living in rented homes, this budget has increased the limit of deduction of rent paid under section 80GG from Rs 24,000 per annum to Rs 60,000.

service tax

When it comes to sale of flats or transfer of title of immovable property, so now onwards after the issuance of occupancy certificate there will be no need to pay the service tax, as per latest guidelines of Finance Ministry of India. On Monday, CBEC (The Central Board of Excise and Customs) issued the clarification and statement for the related cases which are pending in these areas and are under the jurisdiction or BMC (Brihanmumbai Municipal Corporation) or MCGM (Municipal Corporation of Greater Mumbai).

On October 23, 2015, it has been conveyed to the Service Tax Authorities in Mumbai that all the dwellings or flats or apartments, or more, in which the entire consideration is received after the issue of occupancy certificate by BMC; will fall outside the definition of “Service” which comes under the Finance Act, 1994 and it means there will be no more tax for title transfer of immovable property, as per the statement of the Central Board of Excise and Customs (CBEC).

The concerning board in the Finance Ministry stated that all the clarification was issued to resolve the long time standing issue which is directly related to the levy of service tax on sale of dwellings or flats or apartments and more after the issue of occupancy certificate and before issue of completion certificate in the jurisdiction or BMC (Brihanmumbai Municipal Corporation) or MCGM (Municipal Corporation of Greater Mumbai).

Currently, service tax is levied at 14 %, but when it comes to housing projects so it is at the abatement of 75 % which means levied on the 25 per cent of the total cost.

Motilal Oswal Real Estate

MORE, (Motilal Oswal Real Estate) the real estate arm of Motilal Oswal Group plans to raise about Rs. 1000 crore through its third real estate fund. The funds will be utilized for development of residential projects by reputable developers in the Mumbai Metropolitan Region (MMR), National Capital Region (NCR), cities like Bengaluru, Pune, Chennai and Hyderabad. The money will primarily be raised in about a dozen transactions of Rs 80-120 crore each from high net worth individuals and family offices.

Explaining the move, Sharad Mittal, director and head of the fund said, “the realty market is consolidating right now and prices are expected to remain stagnant for some time. This therefore, is the correct time for investors to invest through indirect investing since we would participate in the project profits rather than relying entirely on the future price rise.”

The fund has been set up as an alternative investment fund or AIF category II, registered with stock market regulator SEBI. “We expect to achieve first close by mid-January 2016 and conclude fundraising in the next six-nine months depending on the market conditions. Given the current scenario, direct investments may not fetch superior returns,” he added.

Motilal Oswal has in its two earlier funds invested capital under a mezzanine structure in top five property markets with developers such as ATS, Shriram Properties, Godrej Properties, Rajesh Lifespaces, Ahuja and Casa Grande. The new fund will also focus on top six property markets in the country. The first fund worth Rs 200 crore, raised in 2009, has been fully deployed and is currently in exit mode. The fund has exited its four out of total seven investments and given returns of about 82% of the capital. In March this year, MORE had raised Rs 500 crore through its second fund which is presently in investment mode wherein around 80% of the capital has already been deployed.

The third & the new fund, with a tenure of five years from final close looks to target a gross internal rate of return of about 23 – 25%. “We shall continue to undertake mezzanine investments with established developers for their mid-income housing projects across top cities. We shall also undertake structured equity investments depending on the market scenario,” said Mittal.