Earlier last week, property investors had something to cheer about. The first unexpected good news came from the Union Finance Ministry in the form of the direct tax code draft. Though it is still in consultative mode and is yet to be approved by Parliament, the continuance of concessions on the home loan interest front is great news. If you can recall, the earlier DTC draft had proposed doing away with the same while recommending various other measures to help the direct tax paying population.
The DTC proposal assumes significance considering the fact that the Income Tax Act is being overhauled after 50 years. Hence, the current proposals, when implemented, will ensure continuity and can be expected to be in place for a couple of decades.
It is in this light that the proposals relating to home loans are important as property investors can hope to enjoy the sops for a long time. With property investment being long term in nature, it will make the investor prepare better his financial commitment.
Ambiguity
In fact, the ambiguity on the home loan front was a worrying factor for many who had invested in property because of the tax sops. Though income slabs have been rationalised for taxation in the last Union Budget, the avenues for tax relief continue to be limited. As a result, the relief provided to the interest component of home loan has remained as one of the biggest tax savers for most borrowers.
The good news was not restricted to tax sops alone. The other interesting development has been on the interest front which has surprisingly remained steady in the last couple of quarters.
That is good news for borrowers who have been mentally preparing themselves for a rise of 0.25-0.5 per cent in the rates.
Interestingly, even if the interest rates are to move up, which is likely to be official after the announcement of the Reserve Bank's credit policy, the home loan is unlikely to be very expensive. The government seems to be keen on maintaining the status quo and this was evident in the statements made by a few bank chairmen.
Even after the inflation data became public last week, few talked about the imminent rate hike. If one speaks to the debt fund managers, the general opinion is that the interest rates are beginning to peak and income funds are being looked at as an investment option.
Incidentally, the returns from income funds are inversely proportional to the interest rate scenario. In other words, when interest rates are on the downside, the returns from income funds move up and vice versa.
Equity markets steady
From the property investor's point of view, these two factors should be comforting besides the fact that the Indian economy continues to chug along nicely on the growth path. Despite the financial hiccups in various global economies, the Indian economy has managed to stay somewhat insulate. The steady performance of equity markets and their ability to generate returns in double digits will go a long way towards increasing funds flow to the property sector.
History has shown that property is the preferred investment option for those who book profits from equity. In the last two years, since the deep correction in October 2008, the equity markets have been on a roll though there have been corrections at regular intervals.
Source: The Hindu Property plus.
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