Budget 2016-17 a Boon for Affordable Housing

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On the face of it Budget 2016-17 appears to be heavily favouring farmers and rural Indians. However, on closer observation it can be seen that budget has huge allocation for housing and construction sector by giving it benefits of infrastructure status in the Budget 2016-17.

There are various tax concessions and reliefs announced that would go a long way in meeting the long standing demand of the construction sector for infrastructure sector. Here are the points that prove the point that Budget 2016-17 has good enough allocations for Urban Indians as well:

budget 2016-17

  1. As against the increase of 15% in the total Central plan Outlay for 2016-17 over Revised Estimates for current fiscal, Plan Outlay for the urban sector has been increased by 55%. 
  2. The share of urban sector in the total Central Plan Outlay for the current fiscal and the next fiscal remained at about 5%. 
  3. The Budget for next financial year proposed several concrete measures to enable flow of investments into affordable housing and construction sector.
    • Introduction of Public Utility (Resolution of Disputes ) Bill later this year to streamline institutional arrangements for resolution of disputes in infrastructure related construction projects, PPP and public utility contracts;
    • Guidelines for renegotiation of PPP Concession Agreements to be issued keeping in view the long term nature of such contracts and potential uncertainties without compromising transparency;
    • A new credit rating system for infrastructure projects with emphasis on in-built credit enhancement structures, instead of relying upon a standard perception of risk which often result in mispriced loans. These initiatives to make PPP workable are significantly useful;
    • Life Insurance Corporation (LIC) will set up a dedicated fund to provide credit enhancement to infrastructure projects;
    • To promote affordable housing projects, Service Tax Exemption has been announced on houses up to 60 sq. metres including PPP projects;
    • 100% deduction on profits allowed for affordable housing projects approved during June 2016-March 2019 and completed in 3 year time from approval. Houses up to 30 sq.mt in four major cities and up to 60 sq.mt in other cities are eligible for this benefit. This will motivate quick formulation and completion of projects.
    • To promote rental housing which meets the needs of migrants and those who can't afford to build a house, deduction limit has been increased by Rs.36,000 (from the present Rs.24,000 to Rs.60,000)
    • For the first home buyers, an additional deduction of Rs.50,000 allowed if loan amount is less than Rs.35 lakhs and loan sanctioned in 2016-17 and cost of house is below Rs.50 lakhs;
    • Real Estate Investment Trusts (REITS) and Infrastructure Investment Trusts (InVITS) encouraged by withdrawing 17% Dividend Distribution Tax; and
    • Excise Duty exemption extended to Ready Mix Concrete.
  4. Other announcements like Modernisation and digitisation of land records, facilitating Ease of Doing Business and further liberalisation of FDI conditions would also go a long way in channelling the much desired investments into housing sector including affordable housing.

Concerns expressed by Urban Minister Venkaiah Naidu:

Urban Minister Venkaiah Naidu stated that he would have liked more allocation fro urban sector right in the beginning, the Budget 2016-17 has acknowledged the importance of urban sector as evident in the allocations.

Mr. Naidu has also expressed concern over slow offtake of central assistance by states under Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and urged them to improve planning and execution capabilities.

Mr. Naidu also asserted that required resources will be made available as per the commitments given by the Central Government under new flagship schemes like Prime Minister's Awas Yojana (Urban), Atal Mission, Smart City Mission and Swachh Bharat Mission. He urged the States to quickly spend the resources provided by the Central Government and ask for more, if they can.

Mr. Venkaiah Naidu on social media campaign for Real Estate Bill:

Referring to the social media campaign by consumers and potential home buyers seeking early passage of Real Estate Bill, Mr. Naidu urged all concerned to enable early passage of the Bill which aims at promoting confidence of consumers and credibility of real estate sector.

Allocations made for the two Urban Ministries and major schemes:

Ministry of Urban Development: Rs. 21,000 crore.

  1. MRTS and Metro Projects: Rs.10,000 crore
  2. AMRUT: Rs. 4,000 crore
  3. Smart City Mission: Rs. 3,205 crore
  4. Swachh Bharat Mission: Rs. 2,300 crore
  5. CPWD: Rs. 879 crore (for residential and office Accommodation)
  6. HRIDAY: Rs. 200 crore
  7. North-East: Rs. 250 crore

Ministry of Housing & Urban Poverty Alleviation: Rs.5,400 crore.

  1. PMAY: Rs. 5,041 crore
  2. DAY-NULM: Rs. 325 crore

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