Real estate sector to get a boost from the government’s economic package

Published: August 30, 2019 12:33:52 PM

Cheap loans in the market will help increase demand in the real estate sector which is also beset with a hoard of unsold inventory.

real estate, real estate in India, real estate investment, economic package, Finance Minister Nirmala Sitharaman, home loan It is expected that the government might reduce the rate of Goods and Services Tax on under-construction projects.

The Central government’s decision to recapitalise public sector banks by releasing Rs 70,000 crore upfront is not only expected to boost liquidity in the market, but also provide the much-needed impetus to the real estate sector in the country.

Announcing the decision to infuse state-run banks with this capital, Union Finance Minister Nirmala Sitharaman recently said that the move is expected to generate an additional lending and liquidity in the financial system to the tune of Rs 5 lakh crore.

The government also announced to provide an additional Rs 30,000 crore to housing finance companies through the National Housing Board which will go a long way in reviving projects stuck for the lack of funds and ensure release of a number of units to end-users within the stipulated time.

The market is further set to gain from the fact that rate cut benefits given to public sector banks by the Reserve Bank of India will further be passed down to borrowers. Cheap loans in the market will help increase demand in the real estate sector which is also beset with a hoard of unsold inventory.

All eyes will be, however, on the finance minister again when she is set to announce a fresh set of measures aimed at reviving the economy. The minister has promised to announce measures aimed specifically at resolving the problems of homebuyers, particularly in the NCR, which will have a bearing on Mumbai too.

As per a report, 1.74 lakh housing units are stuck in around 220 real estate projects across seven cities in the country due to lack of adequate capital in the market. Out of these, 1.18 lakh flats are stuck in the NCR alone. This data is in the face of the fact that the Union government has promised Housing for All by 2022.

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While the infusion of capital into the public sector banks is expected to boost liquidity, a pragmatic set of measures aimed at the benefit of homebuyers is expected from the finance minister in order to ensure the real benefits are passed on to the end-users. It is expected that the government will announce the setting up of a stress fund for the real estate sector in order to ensure timely completion of projects. It will increase investor confidence in the real estate sector apart from ensuring that end-users do not suffer for the lack of timely completion of projects. A number of housing projects are already under litigation for inability of the developer to provide possession of units within the stipulated time limit.

Furthermore, it is also expected that the government might reduce the rate of Goods and Services Tax on under-construction projects. It has been learnt that the GST council had reduced the tax rate on under-construction projects from 12 per cent to 8 per cent while the rate on affordable housing units had been brought down from 8 per cent to 1 per cent. However, input tax credit had also been ended along with this which resulted in real estate developers having to pump in more money into their projects.

For the industry, what has a come as a great relief from the announcements made by the finance minister are the decisions to withdraw enhanced surcharge on capital gains and to do away with the provision to treat violation of corporate social responsibility as a criminal offence. The decision to do away with enhanced surcharge on foreign and domestic equity investors will further go towards increasing foreign investment in the country.

The government has decided to ensure all pending Goods and Services Tax refund to micro-, small and medium industries are cleared within a maximum period of 30 days. Furthermore, the government has also decided to do away with angel tax for start-ups. These two decisions reflect the government’s concern for small investors and entrepreneurs as well as its commitment to help boost entrepreneurship in the country.

The automobile sector is also expected to get a boost from the package announced by the Union government. It has sent a positive signal that the government has decided to lift ban on purchase of new vehicles for replacing all old vehicles by government departments. Measures like working out a scrappage policy for old vehicles will boost positive sentiments in the market.

(By Uddhav Poddar, MD, Bhumika Group)

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