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Finance minister Nirmala Sitharaman’s thrust for reviving home sales did little to enthuse investors on the Street. The Nifty Realty index turned out to be the biggest loser, falling as much as 7% in the last two trading sessions since the Union Budget.
Indeed, there were incentives to boost affordable housing. For houses worth up to ₹45 lakh, interest payments on home loans will now be tax deductible up to an amount of ₹3.5 lakh per annum, instead of ₹2.5 lakh earlier.
Further, norms for exemption have been tweaked to include a larger area of living space. The cap on the of size of houses that qualify for these sops has been doubled to 60 square metres in some cities and increased from 60 to 90 square metres in a few others.
“The hike in tax deductions on interest paid on affordable housing loans will hardly move the needle. It reduces the cost of ownership by just 4-5%. The size limits imposed outside metros may prove to be an irritant," analysts at Jefferies India Pvt Ltd said in a note.
The size cap has been left unchanged in metros and the ₹45-lakh cap may act as a constraint in offerings of realty firms, they added. This will be especially true for listed firms, whose offerings are centered in major cities.
Besides, while large realty companies have increased their exposure to the affordable housing segment, its contribution to the overall turnover is still relatively low for them.
Meanwhile, analysts are skeptical about the proposed shift of regulatory authority for housing finance companies from the National Housing Bank to the Reserve Bank of India. It may temporarily result in liquidity crunch for those seeking housing finance. “This may pose an interim challenge given possible realignment of regulations (on capital adequacy ratio, leverage ratios, cap on deposits, etc.). Also, the possibility of asset quality review of housing finance companies (HFCs) then cannot be ruled out," analysts at Edelweiss Securities Ltd.
Meanwhile, there is also a speculation that raising the annual turnover limit from ₹250 crore to ₹400 crore for corporates that pay 25% tax may bring relief for real estate firms as many mid-sized firms fall in this category.
Be that as it may, the incentives don’t look attractive enough to drive momentum in home sales that form significant part of the revenue, especially for firms in the listed universe.