Anarock said the additional tax-free year offers developers more time to handle unsold ready inventory, but after the initial euphoria, it is ironic that only a handful of them will actually benefit from this new rule as on date.
The government’s interim budget proposal for increasing the time period of tax relaxation on notional rent by developers on unsold inventory from one to two years will only benefit around 9%, or roughly 63,000, unsold units across the top 7 cities, a report by real estate consultancy Anarock has noted. Anarock said the additional tax-free year offers developers more time to handle unsold ready inventory, but after the initial euphoria, it is ironic that only a handful of them will actually benefit from this new rule as on date.
Anarock data highlighted that current unsold stock across the top 7 cities is 6.73 lakh units, of which merely 85,000 are ready-to-move in units. Moreover, of this ready stock, only 63,000 units can avail benefit of the new tax relaxation on unsold inventory. The remaining 22,000 ready units have been completed before 2017, which means that they will still have to pay taxes on notional rent, Anarock Property Consultants vice president Santhosh Kumar said.
“Without a doubt, affordable housing gained amidst what was essentially a mass-appeal budget. However, it was the extension of tax relaxation on notional rent for unsold inventory for another year that cheered developers. However, under closer scrutiny, it is unlikely to benefit a majority of them as on date,” he added.
At present, developers are taxed on unsold inventories, or ready-to-move-in (RTM) units, in their completed projects on notional rental income. The relaxation of one year from the completion date was given to them for liquidating their inventory in budget 2017-18 and this time limit has now been extended to 2 years.
Kumar said that there will also be some setback to homebuyers considering RTM options. They may no longer get heavy discounts from builders, who will now prefer to hold on to their unsold stock for another year rather than engaging in distress sales.