By Vanita Akhaury
The Union Budget 2016-17 is inclined toward serving the rural poor. Finance Minister Arun Jaitley strengthens the housing sector to fulfil the government’s mission of providing ‘Housing for all’.
The budget deals with the reality of India, says Arun Jaitley. Therefore, we find, the minister has come forth with measures and proposals to uplift the rural sector by focussing on improving irrigation, farming, rural infrastructure and NREGA and social welfare schemes. By uplifting the rural poor, there will be a considerable increase in rural income, which will indirectly increase the growth of small towns in India.
Thus, real estate sector is bound to benefit, although in the long run.
Therefore, mixed reactions have emerged from the sector on the budget.
Largely, Budget 2016-17 has fallen below expectations for the real estate sector. Will the flexibility given to real estate sector be enough to boost demand in metros? This is the question that is haunting most, post the Budget readings.
Former Finance Minister P Chidambaram reflected in a television channel after the budget pronouncements, saying: “This budget has left every section disappointed.”
The fact that the market indices took a nosedive immediately after the budget announcement more or less reflects the way sentiment in the housing sector has gone.
Yet, the positives for the real estate sector cannot be denied.
One leeway that has been given to the real estate sector in Budget 2016-17 is on affordable housing, which has been the much talked about initiative of the government. To realise affordable housing for all by 2022, therefore, 100 percent reduction is being given to developers who will be undertaking construction of affordable housing with unit sizes not exceeding 30 square metres in the larger cities and 60 square metres in the smaller cities.
Prime Minister Narendra Modi reacting on his government’s intent in the budget to give a house to the poor quipped: apne ghar ka sapna sach hoga.
Further, relief has been provided to those living in rented arrangements, the budget has raised the annual housing rent reduction limit from Rs. 24,000 to Rs. 60,000.
Also, encouraging the sentiments of home ownership, first-time home buyers have been given the benefit of an additional deduction of Rs 50,000 on home loan interest for loans not exceeding Rs. 35 lakh sanctioned in 2016-17, where the value of the house is no more than Rs 50 lakh.
Kishor Pate, CMD - Amit Enterprises Housing Ltd says, such an exemption makes no difference in the burden on first-time home buyers in metros like Mumbai, where housing prices are exceedingly high.
Agrees Arvind Jain, Managing Director, Pride Group, that the relief given to first time home loan buyers will not boost demand in metros.
The biggest announcement with implications for the real estate sector in India was removal of DDT from real estate investment trusts (REITs) states Anuj Puri Chairman & Country Head, JLL India. The Dividend Distribution Tax (DDT) got exempted, clearing a final hurdle on the way of the successful listing of REITs in India. We expect a few listings to happen in the current year itself, either by financial institutions or developers. Currently, around 229 million sq ft of office space can be seen as REIT-compliant. If we assume that even 50% of these get listed, we are looking at a total REITs listing worth USD 18.5 bn.
The budget’s emphasis on infrastructure development with an outlay of Rs 97,000 crore to improve connectivity will hugely benefit the real estate sector, but it is a long-term plan.
The development of roads and highways automatically increases the demands for the commercial, retail and residential real estate, says Sam Chopra, Founder & Chairman, RE/MAX India. The development of the new credit rating system for infrastructure will also be of great benefit for the developers, he thinks.
Approximately 16-18 km of road construction per day has been achieved by the middle of the current financial year, and the Budget has adopted measures to significantly step up NHAI capabilities in this regards, says Puri. He adds, roads infrastructure has great influence on real estate development, particularly with the new land it opens up for development through highways and feeder routes.
With the Land Acquisition Bill not in the scene, the govt is resorting to an alternative route to make the Central Public Sector Undertakings release excess land holdings as the sector faces severe land crisis.
By promoting start-ups in India, the budget presents a chance to developers to cater to this segment. Start-ups in India are encouraged to commence operations with the govt giving 100% tax rebate on profits for 3 years. So, developers and real estate consultants can offer start-up companies small, mixed-use properties or arrangements for sharing of office space.
Positively, a sum of Rs 1500 crore has been allocated for the modernisation of land records in the Digital India campaign, which will definitely have a constructive impact on maintaining transparency in the real estate sector, says Arvind Jain, Managing Director, Pride Group.
On the retail real estate front, permitting seven days of operation for small and medium-sized shops in the unorganised retail segment will allow shop retailers to compete more effectively with malls. This will boost the demand for retail stores on high streets significantly.
The govt’s plans to revive non-operational civil airports in partnership with their States with a rather small allocation of Rs 100-150 crore per airport too, can have positive implications for the real estate development in these cities. The move will enhance infrastructure, and airports are also known influencers of demand for all categories for real estate.
More value addition for the sector will be created through Make in India initiative, which will lead to job creation and salaried people will definitely invest in real estate, thus pushing construction and housing segments.
In the end, the thrust provided to build rural infrastructure via rural electrification will pave the way for real estate development in Tier II and Tier III cities.
So, there are a few, immediate, real positives for the real estate sector like exemption of service tax in affordable housing, increase in HRA, deduction in home loan, and removal of DDT from REITs. The budget could have done a lot more for the sector, laments the real estate fraternity.
The intangible positives too, lie in wait for the sector to benefit in future, through timely implementations.