Budget 2019-20 has given several incentives to the housing sector, especially affordable housing, which is likely to lead to a boom in budget housing and fulfil ‘Housing for all by 2022’ programme of the Modi government.
The Union Budget has provisioned an additional deduction of Rs 1.50 lakh against the interest paid on home loan taken by a first-home buyer, costing up to Rs 45 lakh. So far, a deduction of Rs 2 lakh was permissible for first-home buyers in the affordable housing category.
Now, a total deduction of Rs 3.5 lakh against the interest paid on home loan has been allowed. Thus, if a homebuyer having taxable income in the 20% tax bracket, that is, an annual income between Rs 5 lakh and Rs 10 lakh, will save Rs 7 lakh against the tax liability, which will bring down his effective home loan interest rate to 7%.
However, to avail this benefit, the property value should be less than Rs 45 lakh and the carpet area of the property should not be more than 60 square metres in metropolitan cities, and 90 square metres in non-metropolitan cities.
As these sizes are carpet area, builtup area of the property would be around 85 to 90 square metres (around 1,000 sq ft) for metropolitan cities, and 140 square metres (around 1,500 sq ft) in non-metro cities. This is the standard size for 2 to 3 bedroom apartments in these cities.
This additional incentive is sure to boost the sale of affordable houses in the country. Pradeep Aggarwal, founder and chairman of Signature Global, one of the largest builders of affordable housing in the country, welcomed the decision and said this would make affordable housing “really affordable”.
With this, the EMI of an apartment costing Rs 45 lakh with 15% upfront payment would come down by over Rs 6,000, to around Rs 34,000 per month in the first year, if the homebuyer borrows the fund at 9.5% with 15 years of repayment schedule. Finance minister Nirmala Sitharaman said the new provision will save homebuyers Rs 7 lakh over the entire repayment period of 15 years.
Under the credit-linked subsidy scheme (CLSS) under the Prime Minister Awas Yojana (PMAY), the Union government is also offering a benefit of around Rs 2.6 lakh to first-time homebuyers through subsidy on the interests on home loan. But this subsidy goes directly to reduce the principal amount upfront.
The government has also reduced the GST to 1%, which is an indirect benefit of Rs 1.80 lakh on a house costing Rs 45 lakh. Not only this, the builders of affordable housing also get the benefit under 80IB. Under this section, the profit earned on an affordable housing project by a developer becomes tax free. This enables developers to sell affordable housing projects at competitive rates.
Apart from all these, to achieve “Housing for all by 2022”, the flagship programme of the Narendra Modi government, many state governments — Haryana for instance — have given various incentives like exempting external development charges, which helps developers lower the rates further.
Overall, all the incentives offered by various governments and local bodies reduce the price of an affordable house by over 30% over current market rates.
Navin Raheja, CMD of Raheja Developers, who is building affordable housing in Sohna near Gurugram, said: “If we talk about the Budget provisions coupled with the current benefits given by the government, there has been no better opportunity for first-time homebuyers to buy or invest in real estate sector.”
