Implication of Union Budget 2010 for home buyers in India

Implication of Union Budget 2010 for home buyers in India

Implication of Union Budget 2010 for home buyers in India

Pranab Mukherjee’s budget 2010-11 clearly is development focused. It has promised a huge outlay for Infrastructure development – specifically road networks, power generation and housing. For rural housing the government has increased planned allocation to Indira Awaas Yojana and Rajiv Awaas Yojana.

The budget comes as a mixed bag for home buyers in urban India. The best thing the FM has done from the individuals’ perspective is to up the income tax slabs without increasing the income tax rates. Person earning Rs. 8 lacs per annum (which account for almost 67% of home buying population) will take home Rs 50,000 more from next financial year. This is a substantial reduction in tax liability which will ultimately mean higher disposable incomes which will enable home buyers to get higher home loan which should result in pep-up demand in housing segment. There is however a few negatives as well; home buyers will now be required to pay a 10% service tax on 33% of their EMI amount for an under construction apartment. There is also a 10% service tax on full amount paid towards preferential location (PLC) which has been classified as a service in this budget. These provisions, if not reversed, will take the fizz out of positive sentiments created by rationalization of tax slabs. Developers are likely to re-engineer their payment plan to marginalize the negative impact on the home buyers. Developers will offer additional incentives for 100% upfront payment. You can also expect developers to do away with PLC and including it as part of the base selling price (BSP). This is likely to have an inflationary impact on the housing pricing.

Major beneficiary of the union budget will be home buyers in cat B & C towns and buyers with fewer than 20 lac budget. They will get dual benefit on higher disposable income and lower interest rate on home loan. The budget has extended the 1% subsidy in interest rate for housing loans upto 10 lacs till March 2011. This gives a fillip to home buyers in sub 20 lac segments. However this stimulus is unlikely to benefit the home buyers in large cities and towns as the cost of property in these market is 30 lac + (which will not be benefited from these provisions).

We at makaan.com see this budget as giving renewed thrust to affordable housing. Cheaper loans on affordable housing, lower income taxes and rebate on housing loan interests, means that in 2011, the aam aadmi will fulfill his dream of owning a house in his city.

Last Updated: Thu Aug 08 2013

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