Union Budget 2012: Impact On Real Estate

The impact of policy initiative of Union Budget 2012 has been a mixed one.

The application of 1% TDS on the purchase and sale of property has not been much anticipated. The tax is paid if the property value is more than Rs. 50 lakh in rural area and Rs. 20 lakh in urban area. The service tax of 12.36% will add to the overall cost and will make the property prices costly in future.

The continuation of interest subvention of 1% on housing loan up to Rs. 15 Lakh where the cost of the house is below Rs. 25 lakh has been a welcome. Moreover the indirect finance under the priority sector lending has been raised from Rs. 5 lakh to Rs. 10 Lakh. This will boost the demand for affordable houses.

The support for external commercial borrowing has brought cheer to the real estate industry. This is applicable to low cost housing segment. The reduction of withholding of tax on ECB from 20% to 5% has also brought cheer to the real estate sector. This move will help in creating more low cost houses in India where the demand shortage is almost 26 million units.

The policy introduced for exemption of capital gains tax on sale of residential property provided it is used for subscription in equity shares of SMEs enterprise has marginal and limited benefit to investors.

The policy initiative has been half hearted one. The common investor who is already reeling under high interest rate cost and low purchasing power is till getting trapped under the service tax. The exemption limit on interest on loan for housing loan has not been changed.

The real estate sector still needs major policy initiative. It still lacks a vibrant policy to give an all round thrust. The Union Budget has failed to create a conducive environment for real estate “Industry”.

This is a guest post by Mr. Mitesh Agarwal, BBA & MBA (Finance). Currently working as Financial Analyst with a leading firm in Mumbai.

Leave a Reply

Your email address will not be published. Required fields are marked *