More than incentives in Budget, real estate industry looking for revival in demand to boost economy

Various reforms in 2016 have already laid a foundation for a robust economy, and everybody is looking forward to an optimistic budget that will enhance demand in the economy. In fact, most of the stakeholders are today more concerned about the demand revival in the economy rather than small incentives. With the Union Budget 2017-18 announcement around the corner, here are the budget expectations of various stakeholders of real estate sector.

Developers: Post demonetisation, more than anything, developers expect a budget that encourages ‘demand’ especially in the residential real estate sector. Real Estate (Regulation & Development) Act 2016 (RERA) has improved the buyers' trust to a certain extent, but it will only be effective if government provides an enabling environment for developers to deliver the projects on time. The real estate sector is bearing a huge cost of ambiguity and uncertainty in approval processes leading to delays. These delays can increase the cost of the projects from 10 percent to 30 percent thereby eroding margins completely and leading to inelasticity of pricing in relation to actual demand. Thus, technology enabled single-window clearance is the need of the hour. Although Goods and services (GST) Act is perceived to be good for real estate, clarification on tax credits is another important aspect that developers expect the government to look into. Industry status for real estate sector and infrastructure status for affordable housing are some of the other long-standing demands.

Reuters

Reuters

Buyers: The increased cost of housing and consistent delays in projects is the primary concern of the retail buyer. More than anything else, the buyer today is looking for proper implementation of RERA that should ensure quality and timely delivery of the project. An increase in purchasing power through increase of income tax slabs; extra incentive for home loan principal repayment, which is currently included in the rebates under section 80C of income tax; deduction on interest paid on borrowed capital for under-construction properties from the year of borrowing; increase in standard deduction on rental income are also expected. Besides this, buyers are also hoping that the interest on home loan would be allowed for deduction to the extent of full interest paid at least in respect of one house. Currently, a 100 percent deduction on home loan interest for rented houses is available, while owner occupied homes are eligible for only Rs 2 lakh deduction.

Investors: Commercial real estate remained one of the favorite investment avenue for institutional investors in last couple of years. Although Security and Exchange Board of India (Sebi) has removed most of the hurdles in listing of (Real Estate Investment Trusts), investors are further looking for several exemptions such as stamp duty on transfer of assets, tax credits on REIT income for investors to make them more financially viable. Besides, stable policy scenario, ease in doing business, ease in Foreign Direct Investment (FDI) norms, and less entry barriers are some of the other positive changes that investors will be looking forward to.

Occupiers: The technology sector was one of the major contributors of burgeoning office demand in last couple of years. Removal of Minimum Alternate Tax (MAT) levied on Special Economic Zones (SEZ) is one of the long-standing demand from occupiers.

Besides, timely delivery of infrastructure development as promised is one demand that all stakeholders are hoping from the government. The delay in infrastructure jiggles the entire risk and return dynamics for investors, developers, buyers as well as for occupiers. There are high hopes from smart cities initiative as well, thus everybody is expecting a well thought out implementation plan. For the industry to thrive, the economy needs to grow, jobs need to be created, and more income needs to drive demand for bigger offices, new homes, retail, and hospitality. Thus, more than real estate incentives we are looking forward for the economy to grow.

(The writer is Senior Associate Director, Research at Colliers International)

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Published Date: Jan 24, 2017 03:24 pm | Updated Date: Jan 24, 2017 03:24 pm

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