Arun Jaitley Wants Home EMIs to be Cheaper than Rent

Finance Minister Arun Jaitley on Thursday said that if interest rates moderate, India could be in a pre-2004 situation, where paying a home loan EMI was cheaper than paying house rent. Mr Jaitley, who presented his first Budget today, was speaking to NDTV's Vikram Chandra. (Watch)

Interest rates in India have remained at elevated levels over the last three years because of stubbornly-high and sticky inflation. Mr Jaitley said if the monsoons are good and if inflation moderates, the Reserve Bank may think of lowering rates.

Mr Jaitley said he has taken a lot of policy decisions and given exemptions to the housing sector, which has come under pressure due to high interest rates and the economic slowdown.

The Finance Minister announced a proposal to raise the tax-free cap on home loan interest for self-occupied property from Rs 1.50 lakh to Rs 2 lakh. The real estate sector has been demanding a hike in the ceiling, which has remained constant since 2001, because property prices have risen sharply over the last ten years. (Read the full story here)

"This change will lead to tax savings of Rs 5,000 to Rs 15,000 depending on the individual's tax slab and rate," said Amarpal S Chadha, partner at EY.

In other proposals related to the housing sector, Mr Jaitley eased foreign direct investment (FDI) norms in the housing sector, which will help in bringing the much-needed capital to the sector.

"Requirement of the built up area and capital conditions for FDI is being reduced from 50,000 square metres to 20,000 square metres and from $10 million to $5 million respectively with a three year post completion lock in," the finance minister said.

Mr Jaitley also paved the way for the stock market listing of real estate investment trusts (REITs) in a move to boost foreign investment in the property sector.

Draft regulations for the listing of REITs were issued in 2008, but the government was forced to shelve the plans after the global financial crisis dried up investor interest.

REITs, listed entities that invest mainly in leased office and retail assets and distribute most of their income to shareholders as dividends, will attract foreign and domestic investors including the non-resident Indians, Mr Jaitley said.

Mr Jaitley told NDTV that the government will address any ambiguity around REIT taxation. Shares in DLF gained 9.2 per cent, while Prestige Estates Projects rose 7 per cent today.

(With inputs from Reuters)