As was expected, India’s Union Budget 2019 was by and large a strong electoral pitch in anticipation of the upcoming general elections.
However, in terms of positive impact on the Indian real estate market, the Finance Ministry reserved the best for last.
There were provisions announced which were clearly geared towards improving the sentiment of homebuyers as well as investors. NRI investors, in particular, have a lot to cheer about now.
The 100 per cent tax rebate for people whose annual income does not exceed Rs500,000 — up to Rs650,000 if we include investments under section 80C of the IT Act — obviously has little pertinence for NRIs. Back in India, it is expected that this will help increase demand for affordable housing, but not in the mid-income homes segment.
If we focus on the budget’s actual deliverables for NRIs, the increased TDS (tax deducted at source) threshold for deduction of tax on rental income has been raised to Rs240,000 from the previous Rs180,000. This will result in at least some increased interest in buying homes with the specific purpose of earning rental income.
Moreover, the budget has provided an important break in the capital gains burden on the sale of property. Previously, one could avoid long-term capital gains tax only on the purchase of one home. With the latest provision, capital gains on the sale of a property within Rs20 million can now be rolled over into the purchase of two housing units, but only once in a lifetime.
This means that NRIs who currently hold a large and/or prime-located residential property can now sell it and eliminate the capital gains tax incurred by purchasing two homes instead of one. This is very good news for NRI investors who have a high-value property and want to sell it to get into the more lucrative affordable housing segment.
As an added incentive for investors, the budget has also exempted the previous notional rent charge on second homes that are not occupied for self-use. Not only does this provision make it more attractive to get into property investment in general, but it will also boost the viability of owning a second home.
For the real estate market in general, good news lay in the extension of tax exemption on unsold inventory in the hands of developers by another one year. Though it benefits only a limited few, this reduces the overall tax burden on cash-crunched builders and gives them that much more capital to complete ongoing projects.
While this may not have a direct pertinence on NRI investors, it does ensure that the overall financial crisis that has beset the Indian real estate market has been alleviated to some extent. Improved financial health of developers is always good news for their customers.
NRIs can also take comfort in the knowledge that the thrust on infrastructure development back in their homeland remains focused and funded. The budget has made provisions for the development of more airports and improving the nation’s railway network. Infrastructure plays a critical role in determining capital appreciation as well as rental income on properties in the further suburbs and in tier 2 and tier 3 cities.
All in all, the Indian real estate industry received some very welcome benefits from the Union Budget 2019, and the stocks of major realty players surged immediately after these announcements. For NRI investors who focus on realty stocks, there is now a much clearer vision of where to invest.
Shajai Jacob is CEO — GCC, Anarock Property Consultants.