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February 28, 2001                                       Feedback  

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'Budget has no thrust for the housing sector'

Spectrum News

There is something for everyone in the budget. Something for everyone, except the real estate sector.

So, while the rest of the industry uncorks the champagne bottles to celebrate, the real estate industry calls it a dry day.

Instead of pushing for any major reforms in the real estate sector like foreign direct investment or the foreclosure laws, Finance Minister Yashwant Sinha preferred to satisfy the sector with some measly tax benefits according to experts.

Even the industry status, which was one of the long-standing demands, was not accorded.

Godrej Properties and Investments managingdirector Amit Choudhurysays, "It looks as if thefinance minister wanted the feel-good factor from the other sectors to trickle down to real estate. We wanted some dramatic announcements like FDI being allowed into realty so that there is quality construction at reasonable rates."

It is only the housing finance companies andreal estate investors earning rental incomes who have got a mention in the budget.

The housing finance companies have got a slight thrust on their home loan portfolios with the budget proposing to enhance the tax exemption limit on interest on home loans from the current limit of Rs 100,000 to Rs 150,000. This means cheaper home loans for the borrowers with the interests accrued on home loans not being taxed up to Rs 150,000.

The other announcements for the sector include: House owners earning a rental income will now have 30per cent of it exempt from income tax .

Earlier, tax exemption was for only 25 per cent of the rental income. This tax reliefis given so that the landlord can spend some tax free money to repair and maintain his building.

The next small announcement for the sector is that theform 230 certificate required for transfer of property under the income tax actwill no longer be required. This willput an end to procedural delays while transferring property.

Senior HDFC official Satish Mehta said, "Raising the tax exemption limits on interest on home loans coupled with cut in interest rates will give a major boost housing finance portfolios of NBFC dealing with housing finance. These steps will decrease the cost of borrowing of customers so in effect there will be more ofliquidity in the sector at reduced costs."

"Tax exemptions offered on housing loans are going to make borrowing much cheaper for the investor. Interest rates on home loans will drop,"says Kranti Sinha, director and chief executive officer of LIC.

With rationalisation of corporate surcharge, cost of running of business for the housing finance companies is also expected to come down sharply.

Sinha says, "Operating costs of the housing finance companies will dip with tax on dividends coming down to 10 per cent along with a 2 per cent Gujarat surchargefrom 20 per cent tax structure.So, earlier if my operating cost was 22 per cent now is down to half."

Apart from this, the corporate surcharge is expected to be completely lifted which will further reduce running cost of the companies.

While the housing finance companies are feeling elated with the sops, the real estate developers feel let down specially after all the attention it has been gettingin the past few budgets when Ram Jethmalani headed the ministry of urban development.

The sector got tax incentives on building projects, investors got tax exemptions, in fact all the public sector banks had been asked to treat lending to the housing sector as priority sector lending whereby 30 per cent of the incremental deposits had to be diverted to housing related activities.

Not all is lost is lost say a section of developers. "The budget does mention some incentives forthe sector but we needed more," says FICCI chairman for National housing and Hiranandani Constructions managing director Niranjan Hiranandani .

He says, "Tax sops given to housing finance will certainly encourageinvestmentsin property.The midsegmentborrowers in the house loan category in the Rs 1.2 to Rs1.4 million stand to gain substantially from the move."

"Cement is going to be cheaper with import duties on it beingreduced from 35 per cent to 25 per centThe overall budget for the industry is good. This will seep into the real estate sector as well," he adds.

K Raheja Constructionsvice-president Kishore Bhatija voices the generalsentiment of the sector when he says, "There is really no thrust for housing in the budget."Realty experts say worldwide there is a rebate ofinterest on home loans and here the government is talking of an exemption limit of Rs 150,000 which only creates anegligible comfort level for investors.

At least for the first home purchase a 100 per cent taxexemption on interest should have been given.

Colliers Jardine chief executive officer, Akshay Kumaris a little understanding to the finance minister. He says, "Overall, the effect of the budget will be positive. The real estate sector got some small relief but they are significant. Of course, the finance minister has his own constraints while announcing afiscal package for the entire country."

SBI Housing deputy general manager K L Mazumdar says, "The budget has a positive signal for the housing sector. Tax exemption on interest of home loans and the duty reductions on cement will boost activities in the sector. The finance minister seems to be continuing the initiatives of thenational housing policy."

Tax deduction onrental income is a small but significant step, according to Akshay Kumar. Hesays, "We are trying hard to develop the rental market and this announcement will boost our efforts. The sector was actually looking forward to FDI in the sector being allowed, but these small announcements will also contribute to the gradual growth of the industry."

Hope anddisappointment in the sector. Two sentiments which industry will have to exploit for its own gains for the time being.

Real estate sector wants FDI into freehold land, but...

The Budget 2001-2002 Special

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