The Finance Ministry’s annual Union Budget is will be announced on February 29, and every Indian will be following the announcements closely to understand how individuals and industries alike will be affected. The real estate industry in particular is extremely sensitive to many announcements made in the annual budget, since they can have a direct impact on home buying sentiment. Almost every Indian plans to buy a home as and when it becomes financially feasible to do so, and every year brings a new section of Indians who enter the stream of employed, salaried individuals harbouring this aspiration.
These individuals are just beginning their careers, meaning that their purchasing power is at its lowest point. In other words, they are very sensitive to every factor that influences their finances. Simultaneously, there are those who have already progressed a little further in their careers and have been hoping to purchase a home for a longer period of time. Such individuals have been studying the property market for suitable options and are more or less sure of what they want, and are now looking for the right combination of factors to encourage them make their final ‘buy’ decision.
For the Indian property market, this amounts to a very large number of ‘fence sitters’ – or individuals who are potential buyers but are still indecisive and not yet ready to make a purchase commitment. The real estate industry’s expectation every year is that once the the Union Budget is announced, many of these individuals will go ahead and buy their homes on the back of encouraging announcements. Favourable changes in direct and indirect taxation on individuals, as well as direct incentives related to property purchase, can infuse them with increased financial confidence.
For example, if the finance ministry raises the individual income tax exemption limit, it will have positive impact on long-term spending and saving patterns. More disposable income increases investment appetite, and property is the foremost investment instrument of choice for every Indian, Likewise, if the annual budget increases the tax deduction on home loans, it becomes an additional incentive for people to buy homes.
The annual budget also impacts the financial confidence of individuals in indirect ways. For instance, if duties on consumer goods are hiked, it affects how middle class people will plan their budgets for the year. If the budget announces additional subsidies for utilities such as cooking gas, it will translate into more disposable income. Changes in service tax and sales tax are also directly related to the annual expenses incurred by middle class households, and therefore affect financial planning of families.
In other words, the announcements made during the annual Union Budget can play a big role in moving undecided property buyers off the fence. It is not surprising that everyone from developer to end-user will be paying close attention to what Finance Minister Arun Jaitley has to offer this year.
Authored By: Arvind Jain, Managing Director – Pride Group
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