Mumbai (Maharashtra) [India] February 2 (ANI/PNN): The Union Budget 2023 has emphasised the need to accelerate economic growth, create new job opportunities, and build resilient infrastructure. There was too little for the real estate sector, and it missed an opportunity to boost the home-buying sentiments in the middle class, primarily by increasing the tax incentives on principle and interest on home loans. However, the Government's aim to boost and accelerate infrastructure development will eventually reflect in the growth and stability of the real estate sector.
The Union Budget also missed an opportunity to promote stability and growth in the second largest employment-generating real estate sector by extending tax incentives for homebuyers via enhanced Tax-Sops on home loans. Moreover, the new tax regime, which is going to be the default tax regime, is more vocal on Tax Rebates and silent on Tax Incentives.
The old tax regime still offers tax incentives under Section 80C, where a home buyer can avail tax incentives up to INR 3.5 Lakhs on Home Loans ( Principle & Interest). However, with the current interest rates approaching double digits, it remains uncertain if the new tax regime will provide sufficient savings for homebuyers. This shift in tax policy may lead to a short-term negative impact on the real estate sector, particularly in light of the ongoing recovery from prior structural reforms and pandemic-related slowdown.
The imposition of a cap on capital gains benefits for real estate property at a maximum of INR 10 crore is expected to impact demand for ultra-luxury homes negatively. The Mumbai real estate market will bear the brunt of this measure, as it accounts for a significant portion (over 30%) of high-end homes with ticket sizes exceeding INR 10 crore. It also contributes significantly to the Government's revenue. However, on the other side, reducing the surcharge on the highest marginal tax bracket represents a favourable development. The decrease in the highest tax rate from 42% to 39% has the potential to stimulate demand for high-end real estate and high-value consumer goods.
In the long run, the impetus to contain the fiscal deficit to 5.9% of GDP is expected to positively impact interest rates, as it will limit the Government's borrowing. This, in turn, will help keep interest rates realistic, allowing individuals to finance their dream homes. Furthermore, a moderate deficit will make it possible for more of the population to avail of home loans at reasonable rates, which is a positive sentiment for the residential real estate sector in the coming three to four years.
Additionally, Rs. 10 lakh crore capital investment, a steep increase of 33%, will enhance growth potential and job creation, crowd-in private investments, and provide a cushion against global headwinds, which will help the real estate sector to maintain stability. The increase in outlay towards PMAY resonates with the Government's committed mission of meeting the housing shortage. This will result in increased investment and activity in the construction sector.
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