Fri Feb 26, 2010 5:27pm IST Source: Reuters
* Sector eyes more demand from higher disposable incomes
* Tax concessions for sector to result in cost savings
* Sector stocks jump intra-day, end higher
By Prashant Mehra and Rajesh Kurup
MUMBAI, Feb 26 (Reuters) - Indian real estate sector received a shot in the arm on Friday after the 2010/11 federal budget proposed a slew of tax concessions and measures that could boost demand for the sector, sending their shares soaring.
The BSE Realty index rose as much as 5.6 percent in day trades, with top-listed developer DLF (DLF.BO:
Quote,
Profile,
Research), No. 2 Unitech (UNTE.BO:
Quote,
Profile,
Research) and other sector firms Housing Development & Infrastructure (HDIL.BO:
Quote,
Profile,
Research), Omaxe (OMAX.BO:
Quote,
Profile,
Research) climbing 3-7 percent.
The sectoral index closed up 1.3 percent.
The sector is expected to benefit the most from a move to raise tax slabs for personal income tax[ID:nSGE61P0DV], that will boost disposable incomes and could add to demand that has been steadily improving in recent months.
"The positive revision in tax rates will put more money in the pockets of the middle class, thereby increasing the buying power and sentiments of home buyers," said Anuj Puri, chairman of property services firm Jones Lang LaSalle Meghraj. Prices in India's $50 billion property market are up by a third from last year's lows after a series of interest rate cuts and pent-up demand from a large urban middle class revived home sales, prompting at least 15 real estate firms to line up plans for share sales this year.
Analysts said two other proposals would be key to lowering costs for developers, still reeling under costs of high debts, accumulated amid the sector downturn over the last two years.
The federal budget has extended by another year a scheme to subsidise interest rate by 1 percent on loans upto 1 million rupees ($22,000) where the cost of property is below 2 million.
That "is a huge upswing, as we have major landbanks where we are providing affordable housing," HDIL Managing Director Sarang Wadhawan said.
Finance Minister also extended income tax benefits under section 80-IB (10) on housing projects (upto 1,000 square feet in metros and 1,500 square feet in non-metros) by another year. The projects, which were to be completed within four years of getting approvals, has now been extended to 5 years.
"This is a big relief for the sector and there will be large savings. Almost 90 percent of our business is residential projects in Tier II and III cities and is covered under these two provisions," Parsvnath Chairman Pradeep Jain told Reuters.
The finance minister has also allowed developers to claim tax breaks on under construction residential projects over 5 years compared with 4 years earlier.
"Companies such as Parsvnath (PARV.BO:
Quote,
Profile,
Research), Omaxe and Unitech, which have residential projects in Tier II and III cities should benefit the most," said Kunal Lakhan, sector analyst at brokerage K. R. Choksey Shares.
But analysts warned the measures would translate into gains for the sector only if developers resisted a fresh round of price hikes. "My message to the developer community is not to look at price hikes, but to focus on completeing projects and deleveraging their balance sheets," Parsvnath's Jain said.
For a full coverage of Budget 2010 click
here ($1=46.1 rupees) (Editing by Ramya Venugopal)
