Rs.1 lakh tax deduction, to be effective from April 1, 2013 to March 31, 2014, provides a fillip
The Union budget presented by Finance Minister P. Chidambaram on Thursday raises expectations for prospective first time home loan seekers based in Tier-II cities such as Madurai.
The one lakh tax deduction, over and above the present Rs.1.5 lakh tax relief on income tax for housing loan interests, which would be effective from April 1, 2013 to March 31, 2014, had provided a fillip to the middle class borrower. With property values hovering around the Rs.37 to Rs.40 lakh region, banks expect a spurt in the Rs.25 lakh segment over the near term.
This has already started to happen, bank managers, builders and chartered accountants in the city confirm.
For the housing sector, which has been witnessing a lull since Deepavali, the incentive is timely. There are bright days ahead, a banker employed with State Bank of India pointed out. “The government should give many such sops periodically as it would act as a catalyst in attracting vacillating investors into the housing fold,” he asserted.
Saravanan, a marketing executive with a construction company engaged in building residential flats, said, “In Madurai, a majority of the housing projects are built in a compact way. A two bed room unit of 800 square feet would cost around Rs.32 lakh at Rs.4,000 per square feet (all inclusive). Assuming that the borrower makes a down payment of Rs.7 to Rs.8 lakh, he can raise a loan of Rs.25 lakh easily (80 to 85 per cent), where he/she would be eligible for an additional Rs.1 lakh deduction offered in the Union budget. Thus, for the mid-size budget housing firms and for those looking for loans would gain,” he pointed out.
Funds will start flowing from August-September onwards, banker A. Subramanian said. He expects unused land in the extension areas to come under new housing projects. Assuming that a conservative 300 residential flats within a budget of Rs.40 lakh are ready for sale during the coming fiscal, which would represent high growth.
Home loan mela
A public sector bank, which organised a home loan mela in the city on Saturday, drew an impressive crowd and a high volume of enquiries, according to the organisers. Even if 10 to 20 per cent of them got converted into real transactions, it would mean a good beginning for the next fiscal.
Meenakshi, (53), a Central government employee, said she was keen to buy a 900 square feet flat near Tiruparankundram. It works out to Rs.28 lakh all inclusive. The builder is offering some value additions. “We welcome the chance to get a flat in a place where security is assured in a gated community,” she pointed out.
Ramanathan, a retired employee from the private sector, is finalising a transaction to pick up a 760 square feet new apartment in S. S. Colony for Rs.29 lakh. “For three persons, the flat is ideal. My son is working with a pharmaceutical company as a sales person. The location is more important for us than the total floor area,” he observed.
T. Ravee, a practising chartered accountant of K. K. Nagar, says fresh home loans disbursed from April under a ceiling of up to Rs.25 lakh would benefit the middle income category more than others.
The Finance Minister should consider lifting the ceiling as that would encourage more people to take loans in Tier-II and Tier III cities. Raising the ceiling would help avert undervaluation of properties as well. Trade and industry should stress this point in post-budget recommendations to the Union government, Ravee suggests.
The additional Rs.1 lakh tax deduction to home loan borrowers would benefit those in the salary bracket of Rs.5 lakh per annum as they fall within the 30 per cent tax slab. The tax saving would encourage the middle income segment to consider purchasing properties in the Rs.40 lakh category, he observed.
Welcoming the tax incentive for home loans, N. Vanitha Sanjay, Executive Director, Nirmala Homes, said that the Finance Minister’s sop offered value for money to homebuyers. “We have three different sizes of dwellings measuring 850, 923 and 944 sq. feet at Rs 2,600 per sq. ft. located near Mannar Thirumalai Naicker College and Sourashtra College, Pasumalai. The additional sop is expected to boost our market,” she noted with satisfaction.
Overall, the local economy of Madurai, currently somewhat sluggish, is expected to perk up by the start of the next fiscal in less than a month.