The Change

Fund raising could become easier for real estate developers with the infrastructure status granted to affordable housing schemes. Developers can not only gain access to foreign currency loans but also to FDIs from foreign investors. Moreover, it can happen at lower rates than in the past — especially for small developers who have been borrowing at higher rates.

Keeping the Housing-for-all promise by 2022 in view, the central government increased allocation under Pradhan Mantri Awaas Yojana, while targeting the construction of one crore houses by 2019. The government also increased the ambit of projects that could be eligible for tax exemptions under the scheme.

There are three positives for the housing construction business that could favourably impact developers’ profitability. First, developers can get additional cushioning time of two years for completing affordable housing projects. Second, postponement of the capital gains tax liability for joint development of property to the time of project completion is expected to benefit land owners and ease land prices over the long-term. Third, breathing time has been given to developers for unsold houses, before being subject to tax on notional rental income.

Moreover, the lowering of holding period for availing long-term capital gains tax to two years could spur investment into real estate as an asset class.

The Background

The housing sector, which witnessed poor sales in the last three years, was hit hard by demonetisation. To beat the slowdown, many developers got into affordable housing projects.

The Verdict

The Government’s initiatives are expected to encourage investments inaffordable housing. While small developers would benefit from better access to funding , those , already into affordable housing, could benefit.

Related Topics