Incentives set to spur demand for housing

Incentives set to spur demand for housing
The Hindu Business Line, July 28, 2009, Page 17

Cheer to home buyers

Our Bureau, New Delhi

In a move that would cheer home buyers, the Government on Monday announced a slew of incentives, including an interest subvention of one per cent for home loan borrowers in the lower and mid-income housing space.

It has also announced a tax holiday for those projects approved during FY08 and completed before March 31, 2012. While the real estate industry feels that the interest subsidy would stimulate the hitherto flagging demand, builders appear divided over the extent of impact of the tax holiday.

Positive impact

“Both the moves would positively impact consumers and developers, and raise the demand for housing. It is a good stimulus at this point of time,” said Mr Pradeep Jain, Chairman of Parsvnath Developers.

The Government has announced an interest subvention of one per cent on all housing loans up to Rs 10 lakh to individuals, provided the cost of the house does not exceed Rs 20 lakh. The interest subsidy would be routed though the scheduled commercial banks and the housing finance companies registered with the National Housing Bank. Announcing this in the Lok Sabha, the Union Finance Minister, Mr Pranab Mukherjee, said that the interest subsidy would be available for one year.

He has also proposed to amend Section 80 IB (10) of the Income-Tax Act to allow the tax holiday in respect of profits derived from projects approved between April 1, 2007 and March 31, 2008 if such projects are completed on or before March 31, 2012.

Industry body CREDAI’s Chairman, Mr Kumar Gera, said that the announcement on interest subvention would drive demand for houses priced between Rs 12 lakh and Rs 14 lakh (as borrowers typically tend to avail themselves of loan up to 80-85 per cent of the total price). “There is already an existing demand in that price band and so the move would further push this,” he said.

Timeband impact

However, Mr Gera felt that the announcement on tax holiday would have a limited impact.

Given the time band, only select projects in a particular area may be eligible for the tax relief, he pointed out. Since all projects within a catchment area may not enjoy these sops, developers who have actually benefited could have a free hand in deciding the extent of price cuts.

The Omaxe Chairman and Managing Director, Mr Rohtas Goel, said that one-year extension on 80IB benefit was positive but may have limited impact.