Budget 2017 is going to have huge respite for real estate sector. Here’s how

So as to make housing affordable and low cost, the government might change the definition of the infrastructure sector upcoming Budget 2017. This move will reduce costs for developers and attract investors.

The proposal came forward after a month of Prime Minister Narendra Modi’s announcement of concessions on interest rates for low-cost housing loans under the Pradhan Mantri Aawas Yojana.

"If we want housing for all by 2020, re-categorising affordable housing as infrastructure is essential. The government had sought feedback about this about a week ago. I see this happening in the upcoming budget," a person familiar with the development told ET.

The government has been trying really hard to push Modi's pet project of providing about 20 million houses across India by 2020. It has reached out to senior finance ministry officials and the Reserve Bank of India for feedback on the proposed change and how to prevent it from being misused.

"The important thing here would be to define affordable housing or low-cost housing. And these projects will have to be insulated in a way that no one is able to take money out without completion of the project," another person aware of the development told ET.

The real estate sector has been under a constant stress as they have borrowed funds at a higher cost. Also the demonetisation move has led to a steep fall in real estate sales.

"If affordable housing is given infrastructure status, it would lower the borrowing cost for the developers. Also, regulations should be simplified to directly borrow foreign debt, which can cost around 4-5% on dollar return," Hemal Mehta, a partner at Deloitte Haskins & Sell, told ET.

According to Industry experts, while it may appear to be a small change, categorising low-cost housing as infrastructure could have far-reaching results.

"Real estate industry has been asking for the infrastructure status for affordable housing for last three years, but this time it is only logical that it could go ahead. This is mainly because the prime minister has announced the new scheme and infrastructure status will help reduce the borrowing cost and help accelerate growth," Jeenendra Bhandari, partner at MGB and Co, an audit and tax firm, told ET.