Finance Minister Arun Jaitley in his Budget 2014-15 also increased the allocation of Rural Housing Fund, run by National Housing Bank (NHB), to Rs 8,000 crore in this fiscal. Another Rs 4,000 has been earmarked for NHB to increase the flow of cheaper credit for affordable housing for urban poor.
"Our government is committed to endeavour to have housing for all by 2022. For this purpose, I intend to extend additional tax incentive on home loans to encourage people, especially the young, to own houses," Jaitley said.
Stating that housing continues to be an area of concern for middle-lower middle class due to high cost of financing, Jaitley said: "To reduce this burden, I propose to increase the deduction limit on account of interest on loan in respect of self occupied house property from Rs 1.5 lakh to Rs 2 lakh".
To deal with the problem of migration of people from rural to urban cities, Jaitley proposed development of 100 'Smart Cities' as satellite towns of larger cities and by modernising the existing mid-sized cities. A sum of Rs 7,060 crore has been provided in this fiscal for this purpose.
For encouraging development of Smart Cities, the finance minister has relaxed the FDI norms.
The requirement of the built up area and capital conditions for FDI is being reduced from 50,000 sq metres to 20,000 sq metres and from USD 10 million to USD 5 million respectively with a three year post completion lock in.
To further encourage this, projects which commit at least 30 per cent of the total project cost for low cost affordable housing will be exempted from minimum built up area and capitalisation requirements, with condition of 3 year lock-in.
In a major fillip to the commercial realty, Jaitley announced tax sops for Real Estate Investment Trusts (REITs).
"REITS have been successfully used as instruments for pooling of investment in several countries. I intend to provide necessary incentives for REITS which will have pass through for the purpose of taxation," he said.
Industry players hailed the Budget saying these measures will help boost affordable housing as well as improve investment flows.
Market regulator Sebi had proposed draft regulations relating to REITs that has been placed in public domain for comments. Final norms are yet to be notified.
REITs would reduce the pressure on the banking system while also making available fresh equity, Jaitley said, adding that the instrument would attract long term finance from foreign and domestic sources including the NRIs.
Noting that Rural Housing Scheme has benefited a large percentage of rural population who have availed credit through Rural Housing Fund (RHF), Jaitley proposed increasing the allocations to Rs 8,000 crore for NHB.
He proposed setting up a mission on low-cost affordable housing which will be anchored by NHB. The schemes will incentivise the development of low cost affordable housing.
Finance Minister allocated Rs 4,000 crores for NHB in this fiscal with a view to increase the flow of cheaper credit for affordable housing to the urban poor/EWS/LIG segment.
Jaitley proposed to add inclusion of slum development in the list of Corporate Social Responsibility (CSR) activities to encourage the private sector to contribute more towards this activity. He said the government is willing to examine other suggestions that would spur growth in the housing sector.