Budget 2017: The Good, Bad, and Ugly

Now that the Union Budget for 2017 is out, what does it mean for the real estate sector? As a first-time buyer, should you invest in a luxury apartment? As a homeowner, should you keep or sell? With this article, we delve into the pros and cons of the budget.

Reduction in the holding period

Investors and homeowners have considerable reason to rejoice with the Budget of 2017–18. But first, a little backstory. Short-term capital gains are taxed at 30 percent, while it is 20 percent for long-term capital assets. According to the latest policy, the holding period for long-term assets such as apartments and homes has been reduced to two years from that of three years. This means that homeowners can now resell their properties within two years of acquiring them and enjoy a reduced tax burden of 20 percent. This could result in more individuals disposing off their homes bringing in a rise in supply versus demand, which will prove to be favorable Luxury Apartments for buyers. The new budget aims to revive the real-estate sector by facilitating mobility and ownership of assets.

Granting infrastructure status

The Finance Minister has proposed to offer affordable housing sectors with an ‘infrastructure status’. In order to qualify, homes will have to display a carpet area of 30 sq.mt. and 60 sq.mt, instead of a built-up area. If you’ve been waiting to buy a luxury apartment, now would be a good time to make a bang for your buck. As for builders, having an ‘infrastructure status’ will mean cheaper loans and better tax exemptions. These benefits will trickle down to first-time buyers who can purchase homes at more affordable rates. This is a significant move towards achieving the ‘Housing for All’ mission.

Base year, redefined

The new budget has set the base year of indexation of long-term assets, including lands and buildings, at 2001 instead of 1981. This comes as good news for buyers. How? Previously, despite paying more on the purchase of property, tax benefits could only be redeemed at registered rates which was much lower than the market value. However, with this move, those looking to invest in property can now enjoy higher tax benefits.

Notional rent

The tax will now be levied on builders for any unsold flats after a year of construction. Earlier treated as stock-in-trade, the same won’t hold good on unoccupied or unsold apartments anymore. Given that only one residence is maintained for self-occupation, any unsold units will be considered rented out and corresponding tax will have to be paid by the developer. In a bid to offset such incidents, it is possible that developers will try to dispose-off those expensive luxury apartments at the earliest, leaving buyers with a promising bargain.