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.