Budget 2011 to boost property demand in tier II & III cities
Pranab Mukherjee’s budget 2011-12 was presented in the backdrop of rising inflation, tight liquidity, high interest rate and negative sentiment surrounding the real estate sector. Events of the recent past including bank loan scam (involving some real estate companies), RBI overall guidance of tightening flow of “easy money” into realty sector and an overall perception of lack of transparency were the major headwinds that prevented the finance minister (FM) from announcing anything meaningful for the real estate sector.
Budget 2011-12, however, had one positive announcement for the Home Buyers wanting to buy a property under 25 lac. The FM has announced subvension of 1% on home loan upto 15 lac (previously 10 lac) for property costing upto 25 lac (previously 20 lac). This is a welcome step and will improve the affordability of houses in this bracket, especially in tier II & III cities. Having said that, I personally feel that a home buyer wanting to buy a house for 25 lac may find it extremely difficult to mobilize 10 lac from his own sources. For this scheme to have meaningful acceptability in the market the FM should have extended the subvension till the loan value of 20 lac. Some other announcements like a dedicated task force to deal with black money and cutting bureaucratic delays & improvement of response time by governmental agencies will have an indirect positive impact on the realty sector.
In the absence of any negative announcements, we at makaan.com see this as a slightly positive budget for the real estate sector. This is a budget that will boost property demand in tier II & III cities and will make the “aam aadmi” come closer to his dream of owning a house.