JOIN USWith industry experts giving the budget a big thumbs-up, Bindu Gopal Rao decodes what it means for real estate...
The much-awaited budget has come and gone, and naturally, with the new government at the helm of affairs, the anticipation and buzz was quite high. The latest budget has made several announcements that augur well for the realty industry. Here are some of the key takeaways for the sector:
According to Venkatesh Gopalkrishnan-EVP & CIO, Shapoorji Pallonji Real Estate, “Overall, it is a very well-balanced budget keeping in mind growth deficit and inflation.
Meeting the fiscal deficit targets could be a challenge. Tax reforms and rationalisation, driven by realisations led by higher growth, will help achieve the deficit targets. The budget will propel GDP growth, which will in turn spur the real estate demand over the medium term.”
Real estate investment trusts
The introduction of real estate investment trusts (REITs) for real estate projects ensures that the government is clearing the path for real estate developers to access funds without pressurising the existing banking system. The proposal to incentivise the REIT, whereby it will be given a tax pass through status will avoid double taxation.
“We expect this to boost investments in the real estate industry, especially in the commercial space. It is expected that REIT can prove to be encouraging for the real estate developers’ community as it would attract long-term finance from foreign and domestic sources including NRIs,” opines JC Sharma, VC & MD, Sobha Developers Limited.
Surabhi Arora, Associate Director, Colliers International explains, “The capital component is of paramount importance, the introduction of REITs would be beneficial for the Indian market as they not only provide efficient access and flexibility to raise capital, but also provide an alternative exit option to investor.
“The introduction of REITs in India would spell scores of opportunities for developers or private funds or financial institutions, as they can be used as an exit vehicle to rotate funds as per the requirement. REITs have the potential to solve several issues that act as an impediment to growth of the economy pertaining to transparency, credit crunch, organisation of the property market sector, liquidity of real estate assets and execution of property developments across the country, which would help build infrastructure.”
Tax angle
The budget has proposed an additional tax incentive on home loans in a bid to encourage people, especially the young, to own homes. This has been done by increasing the tax exemption on self-occupied home loans from Rs 1.5 lakh to Rs 2 lakh.
Also, the tax exemption limit under 80C has been increased from the present Rs 1 lakh to Rs 1.5 lakh.
“The principal amount paid for home loans is part of 80C and this additional INR 50,000 stimulus will help increase the individual savings and thereby release much-needed liquidity in the market,” says Ganesh Vasudevan, CEO, IndiaProperty.com. The implementation of GST will solve the issues of multiple taxation in all sectors and reduce cost and compliances.
Large focus on infra projects such as the allocation of funds for highways, policy for the long-term financing of infra projects by banks, expressways along with industrial corridors, and the setting up of new airports will have a tremendous impact on real estate development.
FDI for the sector
The FM has proposed several changes in FDI for the real estate sector. The reduction in built up area from 50,000 sq m to 20,000 sq m, and minimum capitalisation from 10 million to 5 million with a three-year post-completion lock in is also encouraging and will allow mid-sized and smaller developers to enter the fray.
Anuj Puri, Chairman & Country Head, JLL India says, “This is a big positive considering a number of smaller cities will also qualify for FDI investments, thereby enabling cheaper mobilisation of funds.”
Furthermore, projects which commit at least 30 per cent of the total project cost for low cost affordable housing will be exempted from the minimum built-up area and capitalisation requirements, with the condition of three-year lock in. Navin M Raheja, Chairman, NAREDCO & ASSOCHAM opines, “Change in FDI guidelines will help to get finance in small projects as well and affordable housing will get a boost as there is no minimum requirement of built-up area and capital investment.”
Emphasis on infrastructure
The budget has also proposed Rs 7,060 crore for the development of 100 smart cities, 50,000 crore for urban infra projects and 500 crore for the setting up of five more IITs and IIMs across the country. These initiatives aim to propel real estate development.
According to Nishant K Agarwal, Managing Director, Avighna India Ltd., “By clubbing the real estate sector and infrastructure segments together, we expect to see a drastic change in how the real estate sector operates in the coming future.”
The announcement on setting aside Rs 8,000 crore fund under the umbrella of the National Housing Bank has also been appreciated. CREDAI Chairman Lalit Kumar Jain adds, “We are happy that the government plans effective steps to operationalise the SEZs, to revive the investors’ interest to develop better infrastructure, and to effectively and efficiently use the available unutilised spaces.”
With the government’s increased emphasis on developing infrastructure in tier 2 cities, the giants of the realty industry will also eye the new developing cities. Projects like metro rail for tier 2 cities, the setting up of new airports, new industrial towns, and improvements to national and state highways augur well for the realty industry to prosper in these cities.
The development of smart cities across the country will create spacious residential areas with adequate amenities for its residents. The development of industrial smart cities will provide potential to new developments and investments in the country, giving a complete new trajectory to the sector as well as reduce the burden on congested cities due to impending excessive urbanisation.
Affordable housing
The announcement of Rs 4,000 crore provided for low cost housing through the National Housing Bank is another step in the right direction that will increase the flow of cheaper credit for affordable housing to the urban poor/EWS/LIG segment.
To create housing for all by 2022, the government is extending additional tax incentives on home loans to encourage young people to own homes.
Also, by including slum development in the list of Corporate Social Responsibility (CSR) activities for the private sector, better quality housing will emerge in populous cities such as Mumbai.
“Slum redevelopment along with consumer protection and road safety awareness will be considered as CSR activity, which is a positive move. As per the government’s manifesto, a low-cost housing policy will make certain housing for every family by 2022,” adds Manoj Paliwal, CFO, Omkar Realtors & Developers.
However, there is still much to be done. Says Manju Yagnik, Vice-chairperson, Nahar Group, “Important long-pending decisions such as infrastructure status to the real estate sector and providing for single window clearance scheme were some of the most awaited announcements.”
All said and done, this budget is certainly progressive and aims to help consumers realise their dreams of owning a home.