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7th February 2020

Effect of Budget 2020 on the Real Estate Sector

On the 1st of February, 2020, Nirmala Sitharaman, the Finance Minister of India proposed the second budget of the second term of the ruling government. Real estate developers in Kolkata were expecting many things from the Budget after the economic slump of 2019. For the real estate sector, after the slump of 2019 in which the sales of houses reduced by one-third, the government included factors in the Budget that help the sector but still failed to act upon many things. Here are the highlights for the Real Estate Sector from the Budget:

  • Increase in Fund Allocation: Budget 2020 saw the Housing and Urban Affairs Ministry outlay touch Rs 50,039.90 crore, a nearly 18.39 percent increase from the revised estimate of Rs 42,266.72 crore for 2019-2020. The influx of funds will improve the conditions of the real estate sector.
     
  • Increase in Funds for PMAY: The outlay for the flagship scheme of the government – the Pradhan Mantri Awas Yojana – has been granted Rs 27,500 crore as against the revised estimates of Rs 25,328 crore in 2019-2020, nearly an 8.5 percent increase. The fund allocation will allow the Yojana to invest more in affordable housing.
     
  • Extension of Loan Sanction: The deduction in the interest for loans on affordable housing introduced by the government in the last Budget of Rs. 1,50,000 was valid for loans sanctioned till 31st March 2020. The Budget proposed to extend the date of loan sanction for availing this additional deduction by one more year. The extension will encourage buyers to invest in real estate.
     
  • Extension of Tax Holiday on Profits: It was proposed that the tax holiday provided on profits earned by developers of housing projects approved by 31st March 2020 would be extended to projects approved for another year. Extension of the tax holiday comes as a relief to developers who had trouble reporting earnings in the earlier half of 2019. 
     
  • Concession for Real Estate Transactions: While taxing income in respect of transactions in real estate, if the value is less than the circle rate (the minimum rate of property that the authorities set for a particular area) by more than 5 percent, the difference is counted as income both in the hands of the purchaser and seller. In order to minimize hardship in real estate transactions and provide relief to the sector, it was proposed to increase the limit of 5% to 10%.
     

Along with all of the above, the government has also created an Affordable Housing Fund of Rs. 25,000 crores to aid housing projects. However, the Budget missed out on any announcements about easing liquidity in the real estate sector which is a concern for most real estate developers. The allocation of ?100 lakh crore for infrastructure development in the next five years is a move in a positive direction. The real estate developers in Kolkata are positive that the changes might lead to a growth in the real estate sector and improve the prices and demand for the consumers as well. What did you think of the Budget? Share your thoughts with us at care@srijanrealty.com.

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