Personal Finance

Tax exemption can help boost demand for first-time buyers for houses

Updated : February 01, 2019 07:12 PM IST

Apart from increasing the basic tax exemption, the savings accrued due to exemption on notional rent on the second self-occupied property will also add to the disposable income.

Exemption on capital gain tax u/s 54 is now extended to two houses from the earlier one up to a maximum amount of Rs 2 crore and will help in reviving investor demand.

Tax exemption can help boost demand for first-time buyers for houses

The Union Budget 2019-20 has clearly focused on leaving more disposable income in the hands of the individuals by increasing the basic tax exemption up to Rs 5 lakh and up to Rs 6.5 lakh with specified investments. In case of a couple earning, this implies an income of Rs 10-12 lakh — Rs 1 lakh per month. This announcement can significantly help boost end user demand especially for first time homebuyers for houses costing up to Rs 30-50 lakh. Apart from increasing the basic tax exemption, the savings accrued due to exemption on notional rent on the second self-occupied property will also add to the disposable income.

Secondly, exemption on capital gain tax u/s 54 is now extended to two houses from the earlier one up to a maximum amount of Rs 2 crore. This announcement will help in reviving investor demand, which had dipped significantly over the past five years for flats costing up to Rs 1 crore across most micro markets of cities, including the Mumbai suburbs.

As far as real estate developers are concerned, it has been observed that with the introduction of Section 80-IBA, many developers had planned and announced projects in the affordable housing segment to avail the tax deduction. The extension of this clause until March 2020 will enable developers to announce more supply in this category, which in turn would help in bridging the prevalent demand supply mismatch. An improvement in sales velocity improves the developers’ cash flows and ensures project completion as well as repayment of debt. The cash flows will also improve on account of an extension by one year on notional rent on unsold units.

Rationalising of GST rates on housing is also a work in progress and there should be a positive announcement soon. Continued low inflation also renders a case for a reduction in interest rates which will also boost demand.

It is noteworthy to mention that after a period of five years the government is now clearly attempting to revive this sector as there are around 250 allied industries dependent on it. It is the second largest employment generator and plays a crucial role in economic growth.

Sunil Rohokale is the managing director and chief executive officer of ASK Group.

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