Small housing sector gets tax shelter till 2012

Small housing sector gets tax shelter till 2012
The Economic Times, July 28, 2009, Page 11

Our Bureau NEW DELHI

THE Centre’s move to extend by two years a key tax exemption available to builders of smaller homes and give interest subsidy to home buyers is likely to boost supply of lower-priced homes and could nudge fence-sitters to return to the market, industry officials say.

Finance minister Pranab Mukherjee on Monday told Parliament the government was extending the provision of section 80IB(10) of the Income Tax Act to projects approved before March 2008 and to be completed before 2012.

Earlier, the provision was limited to projects sanctioned before March 2007 and to be completed before March 2010. The extension exempts builders from paying tax on income from the sale of houses of 1,000 sq ft built-up area within 25 km of municipal limits of big cities and 1,500 sq ft in other sites.

“The government’s decision will prompt more property developers to launch smaller-sized and lower-priced homes, which is the need of the hour,” said Navin Raheja, chairman of Raheja Developers, which plans to soon launch homes in the “affordable” bracket.

Ravi Ramu, CFO of Southbased builder Purvankara, called the government move “a big step” that would increase the supply of affordable homes in the country. Purvankara has, through a subsidiary Provident Housing, entered the affordable housing segment with offerings in the sub-Rs 20 lakh price point.

The company has already launched such a housing project in Chennai and will be launching another in Bangalore soon. “It gives us confidence that we are in the right segment,” said Mr Ramu.

A realty boom between 2004 and 2007 saw many developers target large-sized and expensive homes in pursuit of higher margins. Prices rose, sometimes manifold, across categories and homes became unaffordable. The sector went into a tailspin after RBI hiked interest rates to battle rising inflation.

Many developers realised their business model had gone wrong and reworked strategies to focus on lower-priced homes. Some cut prices while others cut apartment sizes and frills to make homes affordable. All this helped rekindle interest among home buyers.

Now, with tax exemption for developers launching small homes, the lower-priced segment is likely to get a boost.

“Many developers who had their projects sanctioned earlier but were not launching them due to a realty downturn will now be incentivised to start their projects,” said Pradeep Jain, chairman of Parsvnath Developers, adding that developers would partially pass on the benefits of tax exemption to consumers.

The FM also said home buyers would get an interest subsidy of 1% on loans up to Rs 10 lakh for homes priced up to Rs 20 lakh. “This will boost housing in tier-II and tier-III cities,” said Mr Jain.

“It will result in increased activity with regard to real estate in the affordable segment, which in turn will create employment and…will have a positive impact on the economy,” said Renu Sud Karnad, joint managing director of the country’s largest housing finance company HDFC.