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Budget Impact On Real Estate: Some Positives, But Industry Wants More

This budget is like a string of pearls tying all key initiatives announced in the last two years into a pragmatic, no-hype budget

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It has been an interesting sequence of initiatives announcements over the last two years. First came the Make in India, Swachh Bharat, Digital India, Housing for All 2022, Start up and Stand up India and as the FM unfolded his third budget, it was like weaving a string of pearls of all key initiatives in some way or the other tying up all the key initiatives announced into a pragmatic, no big bang budget in an attempt to take India to the next leap of growth.

Budget 2016 has continued with a strong push towards infrastructure and sustainable economic growth as in the last year with announcements of Rs 2.18 lakh crore outlays on roads and railways, mention of 160 small airports which can be revived, allowing private players to operate fleet services and concessions for new manufacturing companies in form of corporate tax which will all help the "Make in India" and boost growth. History has shown us time and again over the last few decades that when public expenditure on infrastructure has picked up, demand pick up happens and helps grow GDP.

Real estate is also a sentiment driven industry and measures to grow GDP will definitely be drivers to real estate, albeit in the long run. The 3 biggest challenges of the industry are availability of cheap funds, long and tedious approval process and not much clarity on land titles. The announcements in Budget 2016 addresses a few of the industry challenges. Some of the key aspects of Budget 2016 are as follows:

1. REIT's was a good step taken by the government in the last budget but listing of REIT's have not happened in the last 1 year. One of the sticky issues around Dividend Distribution Tax has been addressed. Distribution made out of income of SPV to the REITs and INVITs having specified shareholding will not be subjected to Dividend Distribution Tax.

2. Our PM has laid down a vision of Housing for All by 2022.The NARDECO-KPMG study on Decoding Housing for All by 2022 talks about building an additional 100 million homes by 2022. The government did spell out it's intention to build 60 Mn houses by 2020. 90% of the demand in housing is in the affordable segment and the budget provided clear incentives to boost affordable segment in this budget like:
a. 100% deduction for profits to an undertaking from a housing project for flats upto 30 sq. metres in four metro cities and 60 sq. metres in other cities, approved during June 2016 to March 2019, and is completed within three years of the approval. Minimum Alternate Tax will however apply to these undertakings
b. service tax on construction has been exempted on affordable houses up to 60 sq. metres under any scheme of the Central or State Government including PPP Schemes
c. Excise duty exemption, presently available to Concrete Mix manufactured at site for use in construction work at such site has been extended to Ready Mix Concrete
d. For the 'first - home buyers', an additional interest of Rs. 50,000 per annum for loans up to Rs. 35 lakh sanctioned during the next financial year, provided the value of the house does not exceed Rs. 50 lakh has been proposed

3. Investments in digitising digital records will go a long way in bringing about clarity on land titles. A beginning has been made in this budget with an outlay of Rs. 150 Cr for digitizing land records from Apr'16

The real estate sector has been going through tough times for now four consecutive years and the expectations from the third budget of the new government were extremely high to inject that dose which will spur growth in the sector and use real estate as another additional vehicle to grow the economy. The budget however left the industry gasping for More

There were no announcements in granting of infrastructure status to the industry which will allow it to access low cost funds with reduced collaterals from FDI, ECB's as well as domestic banks. Approval time is the biggest bottleneck of the industry with demand for a single window clearance having been a unanimous voice for many years now. What the industry was expecting were measures to reduce time and cost involved in getting permissions. In fact, the addition of 0.5% Krishi Kalyan Cess on all services would cause additional burden on home buyers who are already burdened with increase in local stamp duties and sector rate increases in addition to cost escalation.

To my mind the government is committed to 3 key initiatives around Housing for All, 100 Smart Cities and Affordable housing which together will boost real estate. This budget has tied up key initiatives announced in the last two years. I am sure we can look forward to many of our "Ye Dil Maange More" coming around in various forms and measures during the year with the 2 crucial bills of GST and Real Estate Regulatory Bill getting passed soon to drive the real estate sector out of the current situation sooner than later.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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Budget 2016-17 real estate arun jaitley reit

Rupak Agarwal

Rupak Agarwal is a guest writer with BW Businessworld and is an alumnus of IIM Bangalore. He currently works as a Business Head with Godrej Properties Ltd and is a turnaround specialist with multi industry expertise across technology, consumer, media, telecom and real estate. You can reach him at www.rupakagarwal.com and connect with him on twitter at @rupakagarwal

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