Monday, June 15, 2009

Home loan exemption increases

It appears that the government is on an appeasement drive to help the builders. Loan based properties will soon see spikes in sales as these changes take effect. Still the impact will be almost zero on highly priced properties which are not served by the loan market specially Mumbai. For that you need 3/4 of your income to be generated by evading taxes. It is then possible to own in Mumbai. I think this move and the lowering of rates to the vicinity of 9% will drive a bunch of people to make purchases. I'm not turning bullish here but I think for the prospective buyer, doing some research locally is probably not a bad thing. You can always choose to back out of the final purchase but some research is definitely warranted. There was another article I read which mentioned that the 6th pay commission has raised government salaries of unskilled workers to 9500. With such rapid inflation, Rs 1000 will not hold much value any longer. Government jobs didn't pay much and everyone flocked to the private industry. Now the scales have been tipped and government jobs everywhere (US or India) will again be coveted with envy. We are seeing a complete reversal of trend unfolding before our eyes.

NEW DELHI:
The government is considering a proposal to hike income-tax exemption available for interest payment on home loans to Rs 2.5 lakh a Home Loan
Tax benefits on home loan year, to boost demand and rebuild the slowdown-hit housing industry.

The ministry of housing and urban development has urged finance minister Pranab Mukherjee to make an announcement to this effect as part of his Budget presentation in early July, a government official said on condition of anonymity.

At present, taxpayers taking housing loans are eligible for income-tax exemption on interest payment of up to Rs 1.5 lakh every year. Besides this, the repayment of principal amount is part of investments eligible for benefit under Section 80(C) of the Income-Tax Act, which has a ceiling of Rs 1 lakh.

The government has already identified housing as one of its focus areas, a fact highlighted by President Pratibha Patil in her address to both the houses of Parliament.

The existing tax exemption limit is considered inadequate at a time when a two-bedroom house in big cities costs at least Rs 25 lakh.

Considering a person takes a loan of Rs 20 lakh at an interest rate of 9.5%, he would pay Rs 1,88,493 towards interest alone in the first year. His annual interest payment in the first five years would be more than Rs 1.5 lakh.

If the exemption limit is hiked to Rs 2.5 lakh, then a person paying that much home loan interest in a year will save an additional Rs 31,000 in tax every year. This saving of over Rs 2,500 a month would be significant for most borrowers, making home purchases more affordable.

However, as per existing norms, the tax benefits start flowing in only after the construction of the house is completed, which usually takes 2-3 years in case of builder flats.

The housing industry has urged the government to allow for the deduction as soon as loan repayment starts, as it would give substantial relief to home buyers and boost demand.

The Budget documents do not provide an estimate of the revenue forgone on account of this exemption, but it is unlikely to be very significant.

Of the total Rs 38,107-crore tax revenue forgone on account of tax exemptions to individuals in 2007-08, nearly Rs 30,000 crore is on account of Section 80C benefit, one component of which is principal repayment on housing loan.

The housing sector in the country has been hit hard by demand slowdown, following a rise in interest rates. Besides lowering of home loan interest rates, the industry has been continuously pitching for greater tax benefit, as it had the potential of stimulating demand.

31 comments:

Anonymous said...

Home loans defaults in PSBs swell

“The rate of defaults has increased by a 4 percent, in past six months for the banks in Chandigarh region. The banks have also been witnessing rise in the default cases in other regions - quoting, a SBI official, loan department”.

http://www.rupeetimes.com/news/home_loans/
home_loans_defaults_in_psbs_swell_2537.html

Anonymous said...

Indian Govt. is doing the same as US by trying to keep the housing propped up. Eventually, it all will fail. All this hype about India shining is BS.

Why don't all these high paid idiots understand basic economics.

The politicians should concentrate more on feeding the starving masses of India and not the rich folks.

Shubh Chintak

Anonymous said...

another article by the media to prop up real estate prices

Anonymous said...

Vik -
I am sure this article is from ET. What normally ET editorial staff do is table discussion. Instead of reporting actual stories; they try write some bull shit stories like this. Only on ET stories;they mention so many "anonymous" resources or "inside person who is close to the deal" etc. They sit in a room and cook stories.The above story might have been asked RE lobby to influence the budgetery process which sounds as if people are demanding for it.

One story earlier was like RelianceComm was ready to pay upto $60 bil for MTN.What a stupid number to say. Cingular & ATT deal was just $40 bil.

Those business journalists in ET are a bunch of jokers.

Read the following links on the same order; first ET and then FT.

http://economictimes.indiatimes.com/News/News_By_Industry/Cons_Products/Food/Tata_eyes_a_sip_of_UKs_Liberty_Tea/articleshow/2396311.cms


http://ftalphaville.ft.com/blog/2007/09/24/7555/oh-no-liberty-tea-under-threat/

-- Kannan

Anonymous said...

http://economictimes.indiatimes.com/News/News_By_Industry/Cons_Products/Food/Tata_eyes_a_sip_of_UKs_Liberty_Tea/articleshow/2396311.cms


Kannan

Anonymous said...

Anonymous said...
I have been seeing comments by Bindas Bhai "Minimum 50% increase in two years for Mumbai"

After reading this article, i feel so

3:56 AM

Vik,

Request you to track this IP address I am sure this will be from Samajdar Behan aka Shayna.

Minimum 50% increase in two years for Mumbai.

Bindas Bhai

Vik said...

Kannan,

I know what you mean by ET jokers and how they manipulate the news.

However I have to say there are three things which will cause rapid inflation in India

1. Rising crude prices
2. Sixth pay commission implementation
3. Increased government deficit spending
4. Reduced IT exports which will pressurise the rupee

The sixth commission is a wild card event, like the black swan. The last time government salaries rose were in 1997. It is 12 years of catch up for government employees. As I follow the news, I see there are salaries which have doubled as per the new report.

Builders will seek these folks to invest in properties. Again loans would be very easy for these govt employees as their jobs are guaranteed for life. With the new exemption limit on loan interests, it is a no brainer for a govt employee to buy a flat which he can afford. Again as per the multiple of annual salary argument, 20-30L seems to be the avg house which govt folks can afford. Now adding the corruption angle for govt servants,one can easily goto 40-50L.

The IT folks will be replaced by govt folks as the new sought after buyers.


Lets ignore the news headlines and discuss the situation as we understand it using common sense and logic.

Vik said...

BB, I dont have the ability to track IP's. Why dont you create a blogger id and sign up using it.

Anonymous said...

Vik,

Govt employees are not fools like IT folks...Also they get less money and come from various towns / not concentrated on few cities...

They are very crooked especially if you take state govt employees...

They will not settle for flats.. They will build their own flats (few employees together will build houses)... No accountability so they can do anything...

Anonymous said...

Vik,

Final point - when Govt employee buys a house its not at Sub 40 years...

Lot of money is black money so they cannot expose... They will buy under benami... they dont care about tax benefit

Anonymous said...

Builders cannot handle govt employees like IT folks.They will easily get together and straighten out the builders.

They are already have unions and they different by design-tough to handle.Not like IT worms.

Kannan

Anonymous said...

Reverse Exodus from Gulf

http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4384

Kannan

Anonymous said...

Hi

I have been a idiot throughout and I feel that Property prices will fall from this point.

Got screwed because i felt that salary would rise 20% every year. With Take home of 55,000 Rs now stuck with EMIs of 40,000/. People please tell me how to run household and child education in 15,000 Rs in Mumbai.

I tried too hard to convince you guys but it seems that people are too adamant.

"Minimum 50% decrease in two years for Mumbai"

- Bindaas Bhai

Anonymous said...

Frustration is clearly showing up, instead of tracking the prices they are busy posting useless comments.

Minimum 50% increase in two years for Mumbai.

Bindas Bhai

Anonymous said...

With the new taxation property prices are going to shoot.

Now I have changed it to 3 months

"Minimum 50% increase in 3 Months for Mumbai."

I will stop posting on this blog if that does not happens. Note the date today 16-Jun-09

Bindas Bhai

Vik said...

There is s section of govt employees which will buy benami properties however there is another section of people who are in no position to generate big amounts of black money. Think Bank officers, DRDO folks, railways, defense, teachers among others.These are the original middle class folks who our parents aspired to be. These folks were left behind in the rapid reduction of purchasing power of the rupee. The 6th pay commission aims to fix some of this.

Lets hear from some govt sector folks on how they plan to use their wage increases. It will be interesting to track their spending habits.

Vik said...

I feel the pain anonymous BB who has the EMI of 40k with a payment of 55k. My advise would be to exit the property and buy something more affordable. It is not possible to live in 15k in Mumbai. I was just there and amount of money required to live in that city is staggering.

Anonymous said...

Waiting for 16-Sept-09 for BB to quit posting here :)

Vik said...

which new taxation policy ? BB please post link before making sweeping statements.

Anonymous said...

BB , put your reading glasses on : 'The government is CONSIDERING a proposal..', there IS no new taxation policy yet, and for sure isnt going to be in force within 3 months.

with agents such as BB getting deperate speaks how the sales are low, im sure 20% decline in next 3 months.

Anonymous said...

Lot of fake BB's around

shailesh said...


Mumbai builds up its low-cost housing


It's about time!!!

Anonymous said...

Ignore Bindas Bhai. Like I said before he is delusional and stupid. Its the head injury what to do?

He will come up with wild statements from time to time and also believe in the truth of what he is saying. A lot of mentally challenged people are like that. If you pay attention to them you will be only encouraging them....So just ignore him.

-Samajhdar Behan

Anonymous said...

Property prices are going to fall


(Bindas Bhai)

Anonymous said...

Hi people,

Interesting take on Govt employees.

The best of the lot seems the central Govt employees. There salary is on time and higher compared to State emp.

Defence r the most simple of the folks without any hassles, but they prefer to settle at their home town.Except for defence, labs, banks and railways (major part) others might have bigger componenet of Other income.

State emp seem to more corrupt and compensate their late salary and lower status thro' additional income (black monies).

Anonymous said...

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Mortgage Home Loans said...

Its true that real estates in India are really very expensive other than in USA.

Puja said...

Nice information. i partially agree with you the real estate india is too expensive. anyone wants to buy house is very tuff work.

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