JOIN US Real estate developers are jubilant over sectoral proposals announced by Finance Minister Arun Jaitley in Budget 2014-15 as these are expected to improve liquidity, especially for cash-short real estate companies, improve demand for housing and increase the supply of affordable houses.
The important proposals relate to conferring pass-through status (or, no corporate income tax) for real estate investment trusts (REITs), relaxation in norms for foreign direct investment (FDI) and raising tax exemption limit on housing loans. Plus, allocation of Rs 4,000 crore to the National Housing Bank.
The pass-through status for REITs was the final hurdle for launch of the instruments after clearance by the Securities and Exchange Board of India. REITs, which are like mutual funds, are expected to create new sources of funding for developers. These could attract around Rs 90,000 crore in the first year of operation.
The immediate benefit would be to companies with a large portfolio of leased assets. Commenting on the same, Kotak Realty Fund Chief Executive S Srinivasan said, “I will be surprised if we do not see the first REIT in the next 12 months. Around 700 million sq ft of office assets can be brought under REITs.”
Echoing similar views, Sobha Developers Vice-Chairman & MD J C Sharma said, “REITs will bring a lot of capital for developers from domestic and foreign investors.”Also, the Finance minister relaxed the minimum area prescribed for getting FDI from 50,000 sq metres to 20,000 sq metres and minimum capitalisation from $10 million to $5 million. Further, projects committing at least 30 per cent of total project cost for affordable housing would be exempted from minimum built-up area and capitalisation requirements.
“Earlier, raising funds was an issue for many developers. Now, more money will come from abroad and developers will have more options to raise funds,” Sharma added.The minister’s allocation of Rs 4,000 crore to NHB will increase the flow of cheaper credit for affordable housing to the poorer sections. “It will make developers more inclined towards affordable housing,” he said.