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March 2, 2001                                       Feedback  

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Middle income group will spur housing demand

Parul Gupta & Gagandeep Kaur

Tax incentives for housing sector, declared by the finance minister in the Budget, is likely to spur housing demand in the middle income category. On the other hand, the incentives will not be much beneficial for the higher income categories, according to V Shrinivas of Cushman & Wakefield.

"The budget seems to encourage the idea of people investing and buying their own houses instead of going in for more traditional options like rent and lease," he said.

The increase in the maximum amount of deduction available for interest payment on housing loans for self-occupied houses from Rs 100,000 to Rs 150,000 will boost the demand for housing specifically in the middle income group.

"The number of people willing to buy a house in the range of Rs 1-2 million will increase. It doesn't matter for the people wanting to go for houses in the higher ranges," Srinivas said.

The removal of section 230 (A) of Income Tax Act, which seeks clearance from the Income Tax department before registering for a sale of immovable property valued at Rs 500,000 or more, will make the process of buying and selling property and that of registration easier thereby spurring further growth.

The section was inconvenient for flat buyers who had an additional hurdle seeking certification by the IT department that there was no tax charge on the property in question.

The government has also simplified the house property measures wherein the existing provision that 'income from house property' is computed after making deductions of one-fourth of the annual value for construction or repair of the property has now been replaced with providing 30 per cent of the annual value and the interest paid on capital borrowed for acquiring, constructing or repairing the property. The amendments take effect from April 2001.

Jones Lang LaSalle (JLL) perceives this as a continuation of the measures suggested in the previous budget, implying a further stable recovery in residential property capital transactions. This impact would be most visible in the Rs 1.2-1.5 million budget segment.

This offers a larger potential demand base for residential developments in this bracket, it said.

"Municipal authorities could perhaps take a cue from the finance minister's suggestion to increase the presently allowed deduction of 25 per cent of annual value for repairs to 30 per cent while calculating the taxable income from house property. They should allow similar enhanced deductions in calculating the ratable value for property taxation purposes," JLL said.

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