The much anticipated budget has come and gone, and it is now time to deconstruct the ‘devil in the details’. So here we go... Again, this year, the focus has been towards regularising the industry, while offering fewer sops. So, in this context, what is actually in store for the real estate sector?
Being transparent The budget has clamped down heavily on the use of unaccounted-for money and given more incentives for the use of online money payments and transfers by introducing the Benami Transaction Bill. “It is no secret that the highest incidence of black money transactions is in the real estate sector, and the move to increase penalisation of black money transactions will boost transparency in the sector,” says Kishor Pate, CMD, Amit Enterprises Housing Ltd.
The overall funding environment will improve because of a host of measures.Non-banking financial companies (NBFC’s) will now have access to The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI). This will allow NBFCs to enjoy the benefits that currently apply only to banks. The measure will help the recovery capabilities of NBFCs by exercising powers to take possession of securities, and sell them in order to reduce non-performing assets (NPAs).
The government will promulgate a comprehensive Bankruptcy Code in 2015-16 and Alternative Investment Funds (AIFs) will now have pass through status. AIF funds are a category of pooled-in investment vehicles, which will boost private equity (PE) investments in start-ups and will improve availability and transparency of funding.
Positive tidings The real estate sector was expecting a major announcement on the deployment of Goods and Services Tax (GST), which will serve to eliminate the multiple taxes associated with home purchase. The finance minister has announced that the GST will be implemented from the next financial year and has increased service tax and central excise duty as a preparatory measure for its deployment. This puts an end to the speculation on when the GST will finally become a reality.
In a major move, the finance minister has removed wealth tax altogether and replaced it with a new super-rich tax applicable only to assets worth above Rs one crore. This means that for the majority of Indians, there will no longer be a tax on property ownership and that only super-luxury homes will be taxed. A major boost has been given to infrastructure development for which there has been an investment increase of over Rs 70,000 crore for the upcoming financial year, which will benefit real estate.
Housing for all A home is the best investment in anyone’s life and the budget is encouraging in achieving this objective. According to Surabhi Arora, associate director at Research Colliers International, “The budget seems to be aligned with the agenda of Housing for all by 2022. This will help to fill the huge demand-supply gap in housing sector and will make housing the next booming sector in India.
As the economy will expand and more jobs will be created in our cities, there is a need to not only plug the existing gap, but also to cater to newer demands. Over the last decade, housing markets have picked up considerably and high demand stimuli have caused shortages and pushed the residential property prices above affordable levels in almost all the major cities.” The steep rise in input costs and accelerating land prices are fuelling the cost of property. Thus, despite the huge potential, the sector has been witnessing an impediment in growth recently.
Adds Sumit Jain, co-founder and CEO, Commonfloor.com: “Allocation of over Rs 22,000 crore for housing and urban development for FY 2015-16 is a welcome step in this regard and will pave way for future realty growth. Moreover, the FM said that the government plans to build 60 million (six crore) homes – 40 million in rural areas and 20 million in urban areas.” However, this calls for strong policy directives for which we will need to wait and watch.
A step forward The rationalisation of capital gain tax regime for Real Estate Investment Trusts (REITs) is a positive move. This will help to make REITs more financially viable for Indian markets and further push introduction in the Indian market.
Additionally, it was announced that the rental income from REITs will have passed through facility. The decision to overhaul capital gains taxes to pave the way for the listing of REITs in the country is a step forward that will indirectly aid the promotion of housing for all in the country.
Says Bijay Agarwal, MD, Salarpuria Sattva Group, “The exemption of capital gains to sponsors upon REIT listing is a welcome move. But to make REIT successful, some more tax incentives need to be provided. In order to achieve ‘Housing for all’ by 2022, the government should provide more support/incentives to home buyers.” REITs which can be listed on stock exchanges, can help channelise both domestic and overseas investments into real estate projects.But then...One negative this year is the increase in service tax rates from 12.36 percent to 14 percent and the increase in central excise duty to 12.5 percent from 12.36 percent. “The proposed reduction in corporate tax from 30 per cent to 25 per cent in the next four years will leave further funds for additional investment in economic activity in the hands of corporate entities, furthering employment,” opines J C Sharma, vice-chairman and managing director, Sobha Limited. Tax incentives to individuals given in the form of long-term savings in the pension schemes will provide social security, which in turn will also channelise savings towards development of long-term infrastructure.
“The government will allow foreign investment in Alternative Investment Funds (AIFs), a category of pooled-in investment vehicles for real estate, private equity and hedge funds. AIFs are funds established or incorporated in India for the purpose of pooling in capital from Indian investors for investing as per a pre-decided policy,” says Anuj Puri, chairman and country head, JLL India.
However, it is disappointing that real estate has not been considered as part of infrastructure or given industry status, something that would have impacted the sector in a helpful manner.
Having said that, the budget is a mixed bag and focusing on the positives will give the realty sector a sustained impetus through the year.