The NBFC liquidity crisis may have played spoilsport last year but a few real estate sector-friendly proposals in Budget 2019 may bring some cheer to the ailing hopefully will bring some cheer to the market
Financial year 2019 has been a mixed bag year for Indian real estate. The year saw the emergence of a new asset class - industrial and warehousing. Commercial real estate also performed above expectations across cities, the icing on the cake of this performance was filing of the Red Herring Prospectus for India’s first REIT.
The year showed positive signs on the residential sector as well but the NBFC liquidity crisis played spoilsport but these proposals in Budget 2019 hopefully will bring some cheer to the market.
Extension of Section 80-IB benefits
The Budget announced extension of Section 80-IB benefits by another one year. This will aid the government's Housing for All programme and give a push to affordable segment.
Section 80-IB benefits has managed to revive the ailing housing sector. Many developers who were in the planning phase of 80-IB compliant projects will now get a breather in terms of receiving approvals for such projects. Increase in inventory of 80-IB compliant units will benefit more end-users. This benefit is a welcome move for the developers as well as the end-users.
Tax on notional rental income from unsold inventory
Earlier unsold inventory was taxed per notional rent income after one year of completion. This in particular was a double whammy for the ailing real estate sector. In a slow market it was anyway difficult to move the inventory and to add to that there was the burden of tax incidence on notional rental income within one year from completion.
The government has now given the benefit of this to the developer. Unsold inventory will be taxed as per notional rental income only post two years of completion. This will give a breather to real estate developers sitting on unsold inventory.
Tax on notional rent Income from second house property
Until financial year 2019, notional rental from second house property that was not leased was taxed. This created a huge drain on the cash flow of investors.
The real estate market is slow and yield from residential properties is at an all-time low. In such a scenario it was unfair to tax notional rental on non-leased house property. The government has revised this rule and for the financial year 2020, second house property that is not leased will not be taxed.
Capital gains benefit
Long-term capital gains from sale of house can now be invested for purchasing two properties instead of the earlier mandated single property. This will enable home buyers to take a decision pertaining to purchasing property faster. This will also residential sector growth. Large residential properties with historic values made it very difficult for owners to sell and create multiple assets. With this new law, owners will now be able to invest in two residential assets and reduce the burden of capital gains.The author is an associate director, Capital Markets & Investment Services, Colliers International India