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Impact of Budget on Real Estate

The Budget 2013 is very disappointing for real estate sector. There will be negative impact of budget on real estate. Though Real Estate is in bad shape as of now and was expecting much more from Budget 2013 but there is no effort from FM to revive and boost the sector. I am listing down impact of Budget on Real Estate sector.

1. TDS @ 1% on all Property transactions above 50 Lacs:

This proposal was made in last year’s budget also but later rolled back due to strong opposition. The objective behind this proposal is to stop circulation of black money in property transactions. Half of the property transactions in country does not carry the PAN & majority transactions are undervalued and under-reported. However Agricultural land will be exempted from this propsal. I fail to understand why Govt is so kind to farmers. Farmer buying 50 Lac land is equally rich compared to person buying 50 lac flat.

The onus of deducting TDS is on Buyer i.e. Buyer has to deduct 1% TDS on property value before making payment to seller. This proposal will come into effect w.e.f June 01, 2013. For buyer this will be cumbersome process because in order to deduct TDS, he needs to obtain TAN and follow other processes like filing of TDS returns and issue of TDS certificates.

Currently economy is in distress and this is not the right time to introduce these kind of provisions. This proposal will increase the property prices.

I give THUMBS DOWN to this proposal.

2. Increase in Tax Exemption Limit by 1 Lac for Home Loan interest on 1st Home Loan upto 25 Lacs

At 1st glance anyone will jump out of seat after reading this proposal, On reading fine print the if’s & but’s attached to this proposal make it dump squib. There are 3 conditions attached to this proposal

(a) Home Loan for Property should be availed only in 2013-14

(b) It is applicable only for Home Loans upto 25 Lacs

(c) The Home Loan should be 1st Home Loan for the buyer

(d) Property value cannot exceed 40 Lacs even if Home Loan is of 25 lacs

With these conditions, the no of people to be benefited will not be many.

I give THUMBS DOWN to this propsal

3. Service Tax increase on Luxury Housing

Luxury housing contribute approx 18% of total real estate demand and budget proposal to decrease rate of abatement from 75% to 70% on homes and flats above 2000 Sq. ft. or flats costing 1 Cr or above. What it implies that Service Tax rate will increase from existing 3.09% to 3.71%.  It will not have major impact on real estate because (a) Service Tax is applicable only on new constructions and (b) In Luxury segment, the buyer don;t mind paying little extra :) I give NEUTRAL rating to this clause.

I am not going to spend much time on rest 2 proposals

4.  Allocation of 2000 Cr to Urban Housing Fund, which will be set up by NHB in consultation with RBI to mitigate huge shortage of houses in Urban Area.

5. Increase allocation to Rural Housing Fund from 4000 Cr to 6000 Cr

From Common Man’s point of view the impact of budget on real estate is NEGATIVE. Let’s wait for next year’s budget from New Govt at centre in 2014.  If it will be presented by Narendra Modi Govt then we can expect positive impact of Budget on Real Estate in 2014.

Copyright © 2011-2013 Nitin Bhatia. All Rights Reserved.

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Pankaj Singh
Pankaj Singh
11 years ago

Mr. Nitin Bhatia, Are you in favour of promoting BLACK money in INDIA,

Nitin Bhatia
Nitin Bhatia
11 years ago
Reply to  Pankaj Singh

Dear Pankaj,

I am not in favor of promoting Black Money. As per current laws, it is mandatory to quote PAN for any property transaction above 5 Lacs but half of the property transactions still don’t carry PAN. It is inefficiency on part of Govt to implement the rule. If this rule is implemented strictly then we need not to charge 1% TDS on property transactions above 50 lacs.

It is not the case that it is difficult to implement this rule as registration of property is in Govt Control but In reality Income Tax department is not serious to implement this rule for obvious reasons. Introducing cumbersome proposals like TDS is negative news for real estate, which will make property transactions difficult for genuine and law abiding citizens. Also it will increase property prices.

11 years ago

Hi Nitin,

I just registered my flat. All the details in the sale deed is correct except the temporary address where I am staying currently & my age. Instead it has someone else’s address. My age is mentioned as 31 instead of 29.

My builder says the temporary address does not matter , the only thing that matters is my name and the property address which is to be registered . Please let me know if I am fine or I need to get my temporary address fixed in the Sale deed.


Nitin Bhatia
Nitin Bhatia
11 years ago

Temporary address is not a concern but age and name should be correct…As your age is mentioned wrong, you may go for Rectification Deed immediately to correct the errors in your sale deed.

11 years ago
Reply to  Nitin Bhatia

Thanks Nitin.

Manu Sharma
Manu Sharma
11 years ago

My thought……………Intrest rate of LOAN’S should be State wise.

RBI cannot force banks to reduce the interest rates of Existing Customers perhaps RBI should ask the banks to provide Loan State wise.

If all items including Petrol, Diesel, and CNG can be sold on rates designed state wise, then why Interest Rate of home loans cannot be state wise.

For example :

if I am buying home in Delhi then Interest rate should be higher, because it’s a metropolitan city with good roads and many other facilities. If I am buying home in NCR (UP) then interest rate of loan much be cheaper (at least 1%) as compared to Delhi interest rate. This will relax the Builder body as well as consumer body, because currently market is very slow due to higher interest rate. Specially for existing customer.

Same should be applicable on other loans as well.

Nitin Bhatia
Nitin Bhatia
11 years ago
Reply to  Manu Sharma

I agree but the Rate of Interest is decided based on Cost of Fund therefore not feasible as of now..But its a good thought.

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