The change
The proposals for the realty sector have made this a lost Budget for the sector, which was looking for a life-line. The bright spot is the higher allocations to infrastructure – rural and urban – which will help boost connectivity and hence benefit the sector over the long term. The measures announced for affordable housing, along with road, metro rail, sewage and water supply development, will boost this segment. These projects tend to be outside metros and suffer from poor connectivity and infrastructure.
Higher allocation and thrust on affordable housing – rural and urban – is a plus for developers with a focus on this segment. Players such as Mahindra Lifespace Developers and Godrej Properties, as well as other realtors in the mid- to low-income housing such as Puravankara may see long-term gains.
The small relief in capital gains tax calculation can help sellers, but the effect of this may be marginal. This is because the rule only exempts adjustments when the difference between the sale price and circle rate in that area is less than 5 per cent. The ailing secondary transaction market may not see big benefits from this.
And any happiness sellers derive from this may be washed away with another proposal on long term capital gains on property sale. Increasing the holding period of investments in capital gains bonds from three to five years is a dampener. This may, however, nudge sellers to not invest their gains in bonds, but re-invest in real estate, hopefully reviving demand.
Tax on REITs may impact developers such as DLF, who were considering REITs as a way to monetise their commercial property assets.
The Background
The residential property market has been seeing slowing sales, a sharp drop in launches and growing inventory for the last few years. Prices have been tepid in most markets and started falling in the key markets. Property developers were hit by demonetisation, the Benami Transaction Act and the implementation of RERA. The GST also took its toll and developers were looking for some big bang announcements – such as tax benefits to home buyers, infrastructure status to the sector and rate rationalisation – to kick-start a revival.
In spite of the umpteen issues, listed realty stocks have been upbeat in the past year. The BSE Realty Index has jumped over 70 per cent in this period, even as sales and launches slumped.
The verdict
The Budget would likely have no impact for the housing sector – developers, home buyers and investors in realty stock.
Takeaways
Infra growth a plus
Affordable housing to benefit
LTCG changes are marginal