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Does Interim Budget make a case to look at realty stocks on D-Street?

The BSE realty index has added 0.42 per cent in the past two trading sessions.

Updated: Feb 04, 2019, 04.16 PM IST
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The BSE realty index has added 0.42 per cent in the past two trading sessions.
The Budget announcements related to the real estate sector indicated that the government was keen on reviving the long-stranded real estate sector.

With the objective of supporting the crawling sector, the government proposed many tax sops to incentivise purchase of second homes. It announced relief for realty firms by extending tax rebate on development of affordable housing until next financial year. Also, not tax will be charged for two years on notional rent of unsold units.

IIFL Securities sees positive impact of the announcements across the real estate sector. The brokerage firm said the proposal related to tax on notional rent on unsold real estate inventory to be levied after two years as against one year earlier will be specifically positive for companies like Godrej Properties and Oberoi Realty.

The government also announced that capital gains of up to Rs 2 crore could be rolled over for investment in two housing units from the current one unit only.

Hem Securities, however, said although the provisions made in the Interim Budget are positive for the sector, currently it is not recommending any stock from this sector.

For developers, interim Finance Minister Piyush Goyal said, benefits under Section 80-IBA of the Income-Tax Act are being extended for one more year on housing projects approved till March next year. This proposal would boost supply of affordable housing.

The BSE realty index has added 0.42 per cent in the past two trading sessions, while the 30-share Sensex gained 0.90 per cent during the same period.

Under Section 80-IBA, 100 per cent deduction of profits is being provided to an assessee engaged in developing and building affordable housing projects subject to certain conditions related to carpet area among others.

According to Edelweiss Professional Investor Research, the announcement is positive for companies which may result in more launches in the affordable segment. One can focus on companies like Sobha, Puravankara, Tata Housing and Brigade Enterprises.

Developers are subject to tax on notional rent on unsold flats if they are lying vacant for more than a year. As per current laws, the period of exemption from the levy of tax is one year, which has now been extended to two years. The period would be counted from the end of the year in which the project gets completed.

Edelweiss Professional Investor Research sees the proposal as a positive for the realty developers. However, it said the move can result in hoarding of unsold inventory to arrest price corrections. “The proposal is specifically positive for companies like Prestige Estates, Brigade Enterprises, Oberoi Realty, which have high levels of unsold inventories,” the brokerage said.

The BSE Realty index cracked 30 per cent during the past one year, with Indiabulls Real Estate falling the most at 65 per cent, followed by Prestige Estate (down 39 per cent) and DLF (down 32 per cent). On the other hand, the BSE Sensex inched higher by 1.50 per cent in the same period.

Balaji Rao, Managing Partner-Real Estate, Axis AMC, said the interim budget has been a reiteration of the government’s emphasis on the affordable housing segment.

“This sector has been a traditional priority of the government, having earlier been given industry status and a number of other boosts through priority sector lending and PMAY, and the extension of Section 80-IBA benefits reiterates this focus,” he said.

Rao further said the government had allowed only marginal concessions to the luxury and premium segments, with the exemption from tax on notional rent on unsold inventory now increased to two years from one. While this does bring some relief to realty developers, it also indicates the government’s reluctance to interfere in this segment.
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