Housing Finance Sector

The higher allocation of funds to the rural housing sector is positive for the housing industry. However the lack of any increase in the limit on claiming deduction on interest payments on housing loans from Rs 75,000 has come as a dampener to the millions who plan to buy houses by taking housing loans. The only benefit has been the increase in tax exemption on repayment of principal on housing loans from Rs 10,000 to Rs 20,000.

Significantly the budget has not given any benefit to those buyers who purchased houses before April 1,2000. These buyers who had borrowed from housing finance companies continue to get only Rs 30,000 on payment of interest, as deduction from taxable income.

The Budget did not address to some of the genuine demands of housing sector which were:

	Allowing 100% foreign direct investment (FDI) in real estate. By permitting 100% FDI investment the industry would have access to low cost technology that would reduce the overall cost of real estate development. This would also increase the flow of funds into this sector. At present foreigners and NRI can invest only upto 40%.
	Access to the external fund (ECB). This would have enabled builders to have access to funds.
	Grant of industry status to housing industry or "infrastructure status". This again would have benefited the housing sector by making access to funds cheaper, and would have also enabled the industry to attract better talent. The lack of industry status result in banks being reluctant to lend to supposedly "high risk" real estate projects
	In the case of housing finance sector no concrete steps has been announced to bring down the cost of funds for housing finance companies.