One of the most awaited budgets in recent years was presented by India’s Finance Minister Arun Jaitley on 1 February, 2017. Though a routine annual activity – albeit among the most critical ones, and always looked forward to; this year’s budget was even more a subject of anxiety than usual, for multiple reasons: The high-profile event of demonetisation preceding it and a series of state-legislature elections to follow (along with the advancement of budget-presentation by a month) made 2017-18 budget an extremely high-focus event. Consequently, there had been a widespread anticipation of the budget being served as a ‘populist’ ‘vote-harvesting’ one, among other things.
What was spelt out, however, turned out to be reformist and investor-confidence boosting. While there are several parts to it, real estate is certainly a major beneficiary this fiscal. It must be noted that under the shadow of demonetisation, the sector had been hit heavily during the last quarter of 2016 calendar. It needed a vital fillip. It was almost ‘now or never’ for a large-section of real estate participants: buyers as well as suppliers.
By removing FIPB approval roadblock, the FM has made a positive move towards enabling investments in the economy. It can create a vital cascading effect for a lot of sectors, including real estate and urbanization processes. As is often stated, India’s ambitious growth plans for the next few decades require massive investments to the tune of US $ 250-300 billion. FDIs are an important mechanism for the same. This one step will go a long way in partially fulfilling the need.
Among the biggest demands of the real estate industry, since years, had been ‘infrastructure status’ for itself. Delivering a pleasant surprise, the budget this year grants the wish – at least partially. Affordable Housing now has the requisite ‘infrastructure-status’. It is roughly estimated that India needs nearly 20-million homes in affordable segment, the creation of which has been a subject of major debate and disagreement between various stakeholders, such as lack of ‘preferential-treatment’ or ‘infrastructure-status’. With this vital pronouncement, the government has evidently moved with intent. In addition, the pronouncement of 30 sq.m. and 60 sq.m. carpet area sizes and removal of the 25-km restriction from municipal limits, eases the path for creation of affordable housing in a much more viable manner.
While the above are pronouncements on regulatory aspects, a series of tax-benefits have been awarded to buyers as well as sellers. These are clearly meant to spur the slackening demand. First of all, the scaling-back of tax-rate from 10 percent to 5 percent in the lowermost taxable segment of Rs 5 lakh should have a positive impact of rebuilding financial capabilities. This bodes well for reactivating housing purchases in the sub-Rs 20 lakh segment. Coupled with interest-rate subventions announced on new year eve, one can look forward to a renewed demand-push. Also, by abolishing cash-payments above Rs 3 lakhs in any transaction, the attempt to clean-up the system of ‘black-money’ takes a further step. Cash-component in real estate has been a major source of trouble, and is a major cause for inflation in real estate prices – particularly in the housing sector. Yet another measure that helps the sector is the lowering of time-frame from 3 to 2 years, for calculation Long-term Capital Gains tax. This can have a signification impact on secondary market for housing. Added to this, is the move of indexation to a more realistic 2011 from 1981.
A major push to the economy, real estate and job-creation is the emphasis placed on infrastructure sector in the budget. Allocation of Rs 2.41 lakh crores for transportation, and an overall Rs 3.96 lakh crores are worthwhile pronouncements. It is an area that needs constant support for regeneration of the sagging economy and for job-creations, which help revitalize the demand for real estate.
Overall, as said earlier, the budget seems to have delivered to real estate, the much-needed oxygen, which it had been gasping for since the last few years; and especially after demonetisation. The budget did leave a few things to be desired – such as lowering of excise and benefits to larger corporate-sector, in view of perceived hits from recent developments in the US on H-1B visas. A bit of refocus on the SEZs for support to IT-sector would have done some more wonders. It is a general anticipation that the government will keep its eyes firmly on these, as the year rolls ahead. GST would be the next most-watched reform that India awaits. The good news after February-1, however, is that the country seems to have begun a rejuvenation process, which it is poised to take forward.
(The writer is South Asia Director - Valuations & Advisory, Colliers International India)
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Published Date: Feb 02, 2017 16:15 PM | Updated Date: Feb 02, 2017 16:29 PM