The Indian government has announced new incentives for the property sector, which should, at the margin, be beneficial for the developers (2-4% EPS upside for F10-12, plus better demand) and the home buyers (5-7% savings for certain affordable housing). More importantly, the incentives highlight the government's pro-consumer and pro-developer policy stance. Two key announcements are detailed below.
Section 80IB (10) has been amended to extend (income) the tax holiday by one year to those housing projects approved in F08 (Apr 07-Mar 08) and get completed before Mar’12. Under this section, only housing units measuring up to 1000sf in Mumbai and Delhi and up to 1500sf elsewhere qualify. Developers can not avail this benefit for larger housing units.
In general, most property developers should directly benefit from this, depending on the extent of projects qualifying for the above. Even though not all the information is available, we estimate that DLF could benefit for its projects totaling 6-7 msf (Kolkata, Kochi, Chennai and New Gurgaon) and UT for 2-3 msf (Kolkata and Greater Noida). Assuming Rs400 psf tax benefit (to be realized over 3 years), we estimate this incentive could lift our earnings estimates by 2-4% for F10-12.
Interest subvention of 1% on all housing loans up to Rs1 mln to individuals, provided the cost of the house does not exceed Rs2 mln. This interest subsidy will be routed through the scheduled commercial banks and would be available for one year. The government has provided Rs10 bln for this incentive.
This incentive should, at the margin, facilitate demand for affordable housing (ASP Rs2000-2400 psf, 1000-800sf unit size). We estimate 5-7% lower outgo for the customer on the total mortgage outlay for 1% interest cost subvention. We believe developers that focus on affordable housing including UT, DLF, should benefit from this.
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