Photo: Pradeep Gaur/Mint
Photo: Pradeep Gaur/Mint

New Delhi: India may offer more tax breaks to encourage investment in the housing sector as Prime Minister Narendra Modi looks to revive economic activity in Asia’s third-largest economy, two people familiar with the matter said.

Finance minister Arun Jaitley has asked the state-owned National Housing Bank to design a programme to attract investments in the housing sector. The move comes shortly after a government panel recommended that salaries of federal employees rise 24% rise, which would be the first increase in their base pay since 2008.

The 13-member S&P BSE Realty Index rose the most in two weeks as of 1:43pm local time. Housing Development & Infrastructure Ltd., DLF Ltd. and Indiabulls Real Estate Ltd. led the gains.

India’s economy is poised to miss the government’s target of at least 8% growth as a global slowdown hurts exports, credit growth is near a 20-year low and bad loans are climbing. Modi’s government is increasing wages and pensions to spur consumption, a move that also puts its fiscal deficit target at risk.

$15 billion

The wage increases would cost the government $15 billion in the next financial year starting on 1 April.

In a meeting with heads of state-owned banks and financial institutions on 23 November, Jaitley said he would look at offering tax incentives to spur investment in housing, two officials present in the meeting said, asking not to be identified due to government rules.

Finance ministry spokesman D.S. Malik declined to comment.

Home sales in India’s top eight property markets fell 4% in the quarter through June from a year earlier, while unsold inventory rose by 18%, according to research firm Liases Foras, which estimates it will take at least 45 months to find buyers for unsold homes in Mumbai alone.

Modi plans to build 20 million houses by 2022 to meet demand for an urban population that is projected to swell to 600 million by 2031, up from 377 million in 2011.

The Reserve Bank of India on 8 October eased mortgage rules. The regulator allowed lenders to set aside less capital to cover home-loan default risks, effectively lowering the cost of funds.