Budget 2012-13: Affordable Housing Initiatives and Industry Concerns
The Union Budget 2012-13, presented on Friday to the Lok Sabha by Finance Minister Pranabh Mukherjee, introduced several provisions impacting the housing sector. The budget proposes allowing external commercial borrowing (ECB) for low-cost, affordable housing projects. It also outlines the establishment of a Credit Guarantee Trust Fund to facilitate a smoother flow of institutional credit for housing loans.
Furthermore, the budget proposes enhancing the Rural Housing Fund provisions, increasing it from Rs 3,000 crore to Rs 4,000 crore. The government also extended the interest subvention scheme of 1% on home loans up to Rs 15 lakh, applicable to houses costing up to Rs 25 lakh, by an additional year.
Industry Disappointment and Concerns
Despite these proposals, real estate stakeholders expressed their dissatisfaction with the budget. They argue that it failed to adequately acknowledge the housing sector's significant role in the broader economy. Industry players voiced specific concerns regarding potential cost escalations and the diversion of investment away from real estate.
CREDAI President Lalit Jain stated, “The proposal of bringing in an umbrella tax structure to the cement industry will increase the cost of housing and will negate the development process. Also providing ECB to affordable housing is a minor respite to the sector. There is an inherent risk of liquidity drying up wherein the exemption of capital gains tax to invest in small and medium enterprises may result in cash out from real estate.”
The sector also projects that the proposed service tax increase will cause an additional burden of Rs 50-100 per square foot on construction costs. This concern is especially concerning given the existing volatility of the economy.
Impact on Urbanization and Industrial Sector
Anurag Mathur, Managing Director of Cushman & Wakefield India, commented on the budget's impact on the wider economic landscape: “The increase in allocation in infrastructure implies a clear intent on enhancing the urbanisation process as well as providing a support to the slowing industrial sector. At the same time the increase in the service tax from 10 per cent to 12 per cent would lead to additional burden on the tenants as the service tax on rentals has remained unchanged.” This complex interplay of budget provisions highlights the wide array of anticipated impact on the real estate sector and India's urban areas.