FM homes in on the middle class

Finance Minister Nirmala Sitharaman has presented India’s burgeoning middle class a golden opportunity to buy a home and still be rich.

In her Budget speech, Sitharaman on Friday said, “I propose to allow an additional deduction of up to ₹1,50,000 for interest paid on loans borrowed up to 31st March, 2020 for purchase of an affordable house valued up to ₹45 lakh.” To that end she added, “a person purchasing an affordable house would now get an enhanced interest deduction up to ₹3.5 lakh.”

As per Sitharaman’s calculations, this additional ₹1.5 lakh deduction in income tax on home loans would translate into a benefit of around ₹7 lakh for middle class home-buyers over their loan period of 15 years.

“This will drive the much-needed urgency in sales and bring the fence-sitters back into the market soon,” says Surendra Hiranandani, founder and director, House of Hiranandani. “This can help attract first-time homebuyers,” adds Anuj Puri, chairman, Anarock Property Consultants.

Further, under the Pradhan Mantri Awas Yojana, the government plans to set up 1.95 crore houses, taking forward its earlier stated mission of providing ‘Housing for All by 2022’. But Puri is of the opinion that the government has set for itself a “gruelling” target.

Sitharaman announced new reforms for the rental housing market which could potentially give a fillip to the real estate sector. While calling out the old rental laws as archaic, she stated that the government would soon formalise a modern tenancy policy. “Rental housing may soon shed its poor cousin status,” says Puri.

“This is a much-needed step in the Indian residential real estate sector. The need for such a reform is immediate, as the current mandate in most state-enacted rent control laws de-incentivise landlords from renting out their flats,” says Saurabh Garg, Co-Founder and CBO, NoBroker.com. “The eviction process is also extremely long and cumbersome for homeowners.”

Besides, the government’s plan to launch a ‘Study in India’ programme to attract foreign students in higher education, for which it has allocated ₹400 crore, “will inevitably create more demand for student housing”, says Puri. “This is one of the best alternative asset class within the residential sector.”

However, the real estate industry isn’t greatly enthused by Sitharaman’s maiden Budget as it did not meet many of their expectations. “The all-important ‘industry status’ remained elusive, taxes were not sufficiently moderated and land reforms were not mentioned at all,” says Puri. Adds Hiranandani, “We were also expecting single window clearance which has been a long-pending demand from the sector. There was significant expectation to cut GST rates to a single, standard rate, and not have multiple rates or taxes.”