Real estate developers and experts have applauded the measures to boost demand and provide liquidity for the sector announced by Finance Minister Nirmala Sitharaman on Thursday.
Sitharaman announced an increase in the permitted differential between the circle rate and the agreement value of housing units to 20 percent from the current mandated limit of 10 percent till June 30.
The increase in the differential will be applicable in residential units of value up to Rs 2 crore. It will help in reducing the tax liability as the tax will be applicable to the lower value of residential units.
The minister said that the decision has been taken to boost sales at a time when demand is low and inventories have piled up. Further, the Centre will also allocate Rs 18,000 crore more to the Pradhan Mantri Awas Yojana (PMAY) – Urban for building houses for middle income and economically weaker sections of the country.
Satish Magar, President, CREDAI National, said that decision to increase the permitted differential limit would help developers to offload long-standing unsold inventory without having any liability under section 43CA for developers and under section 56 (2)(X) of the IT Act for home buyers.
“The slew of measures announced by FM today will have an overall positive impact on the economy and will definitely boost employment and provide some relief to the ailing real estate sector,” he said.
Anuj Puri, Chairman of Anarock Property Consultants, noted that the increase in circle rate differential will benefit both developers and homebuyers.
“For home buyers, it is a clear added financial benefit to round off the existing offers and discounts. Additionally, the consequential relief up to 20 percent to buyers of these units under Section 56(2)(x) of the IT Act for the said period will definitely boost demand, especially in the affordable and mid segments,” he said.
For developers, this move will help clear unsold stock, Puri added. Farshid Cooper, MD of Spenta Corporation, observed while the initiatives provided earlier had set the wheels moving and few state governments had also reduced the stamp duty to give added benefits, the circle rates in cities like Mumbai were still creating a barrier for homebuyers to make the purchase.
“With this announcement of increasing the differential between the circle rates and agreement rates, the affordable residential housing segment is surely expected to witness an uptick and buyers can make an informed decision which will eventually help them to save their taxes. Additionally, FM’s impetus to the PMAY-U will help create housing demand in Tier II & III cities and employment in allied industries,” Cooper said.
Magicbricks CEO Sudhir Pai observed that the time-bound relief for real estate should ease the stress on the sector.
“The additional outlay of Rs 18,000 crore over and above the budget allocation of Rs 8,000 crore given to the Pradhan Mantri Awas Yojana (Urban) provides banks with the resources to meet this consumer demand,” he said.
“The increase circle rate differential till June 2021 will help developers to liquidate stock, even at discounts. “This should push sales and start the virtuous cycle in the economy,” Pai said. Surendra Hiranandani, Chairman, and Managing Director, House of Hiranandani, said the announcements amid the festive season were “perfectly timed”.
“Just when the sentiment is improving amidst the festive season, the government with their income tax relief measure has further provided a thrust to the sector. The move is bound to encourage new buyers. The announcement also provides relief to the developers as the tax liability is reduced,” he said.
Krish Raveshia, CEO of Azlo Realty, said that real estate prices in many pockets of India have remained subdued and declined in some cases. A higher difference will help address this issue, he said. On the additional outlay for PMAY-U, he said that as the real estate sector is connected with many other allied sectors, the move is likely to boost demand in multiple sectors, mainly steel and cement.