Budget 2016 – What’s in it for real estate sector and what State of Uttar Pradesh stands to gain from it?

Highlights of budget 2016

Budget 2016, as described by real estate industry experts is a game changer for the overall housing sector in the country. The budget proposes following incentives for the growth of the realty sector in the country:

1. For houses up to the area of 30 square meters in 4 major metro cities and the houses up to the area of 60 square meters, the budget 2016 provides 100% deduction for profits to a company. These houses have to be approved during the period June 2016 to March 2019 and completed within the period of 3 years. For example, if a real estate developer starts a housing project in Meerut (Uttar Pradesh) for developing houses up to 60 square meters and the project is approved during the period June 2016 to MARCH 2019, then, in that case, the developer will get 100% deductions for profits provided the developer completes the project within 3 years of approval.
2. Affordable housing has got major boost and service tax has been exempted on the development of affordable house up to the area of 60 square meters. This applies to any central or state scheme.
3. For first time home buyers, a deduction for additional interest of Rupees 50000 per year for mortgage loans up to Rupees 3500000. The cost of house shall not cross Rupees 5000000. This will provide boost to housing demand particularly in tier-2 and tier-3 cities.
4. HRA deduction of rent paid under section 80GG for the salaried class has been increased from current Rupees 24000 to Rupees 60000 per month.
5. Exemption from excise duty on Ready mix concrete that is manufactured at the construction site for the use in construction.
6. Real estate investment trusts (REITs) can now be a reality. Finance minister has removed the Dividend Distribution Tax (DDT), thereby, clearing the way for successful listing of REITs across India.

 

Housing shortage across India

The budget has cleared many obstacles in the way of affordable housing across India. There is overall shortage of about 20 million houses across urban India. And 187.80 Lacs or 18.78 millions of that shortage belong to economic weaker section or low income groups. Of these 18.78 million shortages of houses, about 3 million of shortage lies in Uttar Pradesh, followed by Maharashtra at 1.9 million, west Bengal 1.3 million, Tamil Nadu 1.2 million, Bihar 1.2 million, Rajasthan 1.1 million, Karnataka 1 million, and rest across other states of the country.

Prime opportunity for the state of Uttar Pradesh

Uttar Pradesh is the largest state in India and there is now prime opportunity for the state to close this housing shortage. The state government has taken many measures in order to eliminate the housing shortage for Economic weaker section and low income groups. Mr. Akhilesh Yadav led state government recently announced Samajwadi Awas Yojna under which efforts are being made to construct 3 Lacs houses by the year 2016. Under this scheme, houses will cost in the range of Rupees 15 Lacs to 30 Lacs. The prices of houses will not exceed 3000 rupees/square feet in cities in national capital region such as Noida, Ghaziabad, and Greater Noida. And in metros, the prices will be capped at 2800 rupees / square feet and in other cities across the state, the prices will 2500 rupees/square feet.

• How it is being implemented by Uttar Pradesh Government?

The Uttar Pradesh state government has announced variety of measures to implement the scheme.

• Development of infrastructure
• Land use conversion to be free of cost
• Concessions to be given on stamp duty charges
• Single window clearance system

• How budget 2016 can be of great help to implement housing schemes in Uttar Pradesh?

To eliminate the 3 million housing shortage across the state, houses need to be built at a rapid pace. And this needs to be taken up by both public sector as well as private sector. While public sector in Uttar Pradesh has announced Samajwadi Awas Yojna in the past, the private sector now needs to step in and construct affordable housing. The budget 2016 provides many incentives for private sector to come in and develop these houses. Tax exemption on profits, exemption from excise duty on ready mix concrete, exemption of service tax are some of the measures that now incentivizes the private sector companies to develop affordable housing in the state of Uttar Pradesh. At the same time, state government can provide physical as well as social infrastructure to make these houses viable and livable.

We hope, with this budget, the state governments across the country will focus on development of affordable housing and Uttar Pradesh can take the lead and be a model state in eliminating the housing shortage across the country.