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Mixed reactions on Union Budget 2016-17

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Industry players’ have given mixed reaction on the Union Budget 2016-17 and critical overtones have been lesser. 

Union Budget, Finance Minister, Fiscal Deficit, Budget Expectations, Monetary Policy, Indian real estate news, India property news, Track2RealtyGetamber Anand, President – CREDAI National: In this year’s Union Budget, our Finance Minister has taken the right steps to boost housing and ensure that ‘Housing for All by 2022′ becomes reality. CREDAI welcomes the announcement, on the supply front for Private sector’s participation and housing for all by 100% income tax exemption on such houses besides the MAT 30 sq m in metros and 60 sq m in non-metros. This will encourage the private sector to reach these areas that accommodate about 90% of the shortage.

100% exemption will actually increase the IRRs on such ventures. On the enabling side to the homebuyers, the increment of a deduction of INR 50,000 on the home loan for a house of INR 50 lakh is a very big attraction. Moreover, there will be a net-to-net saving of 50,000 rupees a year for such homebuyers.

Considering there has been a 100% exemption of service tax on such houses as well. The increase of deduction on rent paid on a house from INR 24000 to INR 60,000 will also result in a saving of about INR 12,000 to INR 13,000 a year.

It is overall a very positive budget for the real estate sector and CREDAI is certain that this will spur the market and induce the home buyer who has been waiting ever since for some special incentives to actually be able to buy a house. Best part is that there is a timeline fixed for delivery of such affordable houses.

All we ask for now is speeding up of the approval process as the whole project needs to be delivered in a time frame of about 3 years. So a single window clearance system of course would be a big enabler. Now the next task for CREDAI is to convince the state urban local bodies because by-laws are a state subject to increase the densities in their by-laws, to reframe the method of calculation of densities so that smaller units can be made in all projects.

Another important point is the rationalization of the income tax act and small pain-points which existed earlier and were contrary on the government’s claim of ‘ease of doing business’ such as excise on RMC which is for captive use, has been positively addressed. This shows the government’s intent to actually make ease of doing business a reality. So rationalization of the entire tax act will also be a big boost to the sector to step up supply of affordable housing.

J C Sharma, VC & MD, Sobha Ltd: In the given economic environment, this Budget is overall balanced and is growth oriented with immense capacity to unlock the initiatives taken by this Government. As far as the housing sector is concerned, it has come out to be the primary beneficiary. While cars, luxury items, jewellery, travelling, dining, tobacco have all become costlier housing sector has gained the much needed attention.

We welcome some of the realty sector specific proposals:

1. The 100% deduction for profits to an undertaking in housing project for flats up to 30 sq. metres in 4 metros and 60 sq. metres in other cities approved during June 2016 to March 2019 and completed in 3 years will encourage supply in the affordable housing segment. This is subject to Minimum Alternate Tax.

 2. The proposal that distribution made out of income of SPV to the REIT and Infrastructure Investment Trusts (INVITs) having specified shareholding will not be subjected to Dividend Distribution Tax (DDT), in respect of dividend distributed after the specified date, is a progressive step. This step is likely to promote REIT and attract new investments

3. Another good step is the deduction for additional interests of Rs. 50,000 per annum for loans up to Rs. 35 lakhs sanctioned in 2016-17 to first time homebuyers, where the cost of the house itself does not exceed Rs. 50 lakh. This is directly beneficial for both buyers and sellers and will perk up the market sentiments.

4. The exemption from service tax on construction of affordable houses up to 60 sq. metres under any scheme of the Central or State Government including PPP Schemes is another step in the right direction.

5. Exemption for rent paid goes up from Rs. 24,000 to Rs. 60,000 which will augur well for the rental segment of the housing sector.

6. Furthermore, the excise duty exemption presently available to concrete mix manufactured at the site for use in construction work to ready-mix concrete is a welcome move for the industry.

7. The Budget proposal to digitize land records is in the right direction which will render land records free from encumbrances.

We hope all these will help give the much-needed fillip to the housing sector. 

Rajeev Talwar, CEO, DLF Ltd: VikasKaBudget presented by Union Finance Minister, Arun Jately, in the parliament with a Desire, Dream and Vision to transform India, seems to be effectively delivering on the social & economic agenda for Growth. Highlight of the budget as I see was not the new reform / schemes, it was about how the existing schemes and reforms are to be implemented.

Also a big positive from the budget2016 was adherence to fiscal deficit and vision for prudent fiscal management wherein improving the quality of government expenditure.

Another highlight of the budget was, impetus on ease of doing business, wherein he has emphasized on simplification / rationalization of some issues i.e. old PPPs can be renegotiated, be it targeting large stuck infrastructure projects which are stuck or may be Income tax concession for MSMEs. Hence FM has taken care of almost all the pain points for Socio-economic issues.

Talking about real estate sector, we are delighted with an additional tax benefit for first time buyers; this will surely be a big boost to the industry & should help in reviving the sector to an extent by bringing back home buyers although now all eyes are on RBI Governor to come-up with further tax bonanza.

Proposal made by FM regarding Real Estate Investment Trusts, wherein he proposed that any distribution made out of income of SPV to the REITs and INVITs having specified shareholding will not be subjected to Dividend Distribution Tax, will definitely facilitate investments in the sector and will surely promote many players to opt for REITS as a tool to raise money and bringing in liquidity in the market.

Arun Jaitley announced 100% deduction for profits to an undertaking in housing project for flats up to 30 sq mtrs. in four metro cities and 60 sq. mtrs. in other cities, approved during June 2016 to March 2019 and completed in three years slated to the vision of HousingforAll.

Overall a committed road-map is being set by the government, to be delivered in the times to come. 

Surendra Hiranandani, CMD, House of Hiranandani: The budget 2016 outlined the shift in focus to the rural economy as the finance minister introduced a slew of taxes and cess to be imposed on services to help rural welfare programmes.

It also reflected the government’s concern and priority to improve the investment climate with a view to stimulate growth. The massive push for improvement in infrastructure including outlay for roads, railways and development of smaller airports to improve connectivity will benefit the real estate sector in the long run.

The abolishment of DDT is a welcome move and will put the REIT structure in India at par with global standards. REIT listing will soon be a reality. The finance minister also announced certain other measures to bring investment into the real estate sector, while giving special emphasis on affordable housing, few long pending demands of the real estate sector were not met in the budget.

Industry status to the real estate sector, single window clearance, tax concessions on home insurance premiums are some of the measures that could have significantly boosted the sentiments in the sector.

I have listed below few key points offered to the real estate sector by the government in the budget:

DDT has long been one of the biggest hurdles that made REIT financially unviable for Indian commercial stakeholders. Removal of DDT (tax levied on the dividend paid to investors) will result in a rush of investment in REITs and this could prove to be decisive for the sector. This will help developers raise funds and will also effectively address issues pertaining to transparency, liquidity and execution of property developments across the country, that will spur growth in the future.

By introducing an additional interest deduction of Rs 50,000 on home loans not exceeding Rs 35 lakhs, and the value of homes not exceeding Rs 50 lakhs the budget has given some reason to cheer to the first time home buyers.  This could boost demand for housing in smaller cities where the cost of ownership is on the lower side. However, this will make little or no difference if one is buying a property in any metro city in India where housing prices are significantly higher. So, the relief will not make any material difference to the sector.

The government has provided Rs150 crores for modernization of land records which aims at ushering in the system of providing online access of land details and plugging of loopholes. This is a welcome move for the sector as the integrated land management system will not only increase the transparency in the whole system but will also expedite the process of land acquisition and enable holistic growth.

The service tax exemption for developers focusing on affordable housing with unit sizes not exceeding 30 square meters in the larger cities and 60 square meters in the smaller cities is definitely a positive move and will encourage private participation as well. This will increase profits making it easier for the developer to attract foreign and domestic investments in housing projects. It is in line with the governments vision to boost affordable housing. It will be a challenge though for developers to deliver in the three year time frame given the lack of single window clearance for the projects.

The increase in reduction limit from  Rs 24,000 per annum to Rs 60,000 per annum is a welcome move and will give the much needed push to rental housing across major cities in India. It could also boost demand in the long run.

Sanjaya Gupta, MD, PNB Housing Finance Limited: The FM presented a very finely balanced budget. So far, as the housing sector is concerned, the Union Budget for the FY 16-17 is in line with Prime Minister’s vision of ‘Housing for all’ by 2022. Tax reforms made by the government are indicative of centre’s seriousness towards giving a much-required fillip to the housing sector.

The industry has been expecting initiatives that can directly translate into benefits for the end consumer, thus increasing the velocity of transaction and improving the market sentiment. The additional tax exemption of Rs 50,000 for the first time homebuyers is certainly a welcome move. With this we expect a spur in sales and far greater traction of growth in the affordable housing segment.”

Anil Kumar Sharma, CMD, Amrapali Group: Under housing sector, Finance Minister has taken necessary and important steps to boost the affordable housing.  This is a reason, he has proposed to give an additional deduction of Rs. 50,000 on home loan interest to first time home buyers in order to achieve the mission ‘Housing for all – 2022′.

The exemption of service tax on the construction of small houses below 60 Sq mtr is also an appreciable step. Other than this, Dwelling units constructing in next financial year with sizes 30 Sq mtr in four metro cities and 60 Sq mtr in other tier-II cities will also get exemption.

There is no change in the income tax slab, however, there is a small relief up to the income of Rs. 5 lakh and on the same side rebate on HRA has increased to 60,000 to attract the new buyers with keeping view in mind to increase their investment power to purchase their own home.

Also, if the huge amount allocated for the infrastructure development is used in proper way than, it will directly impact to housing & real estate sector in a prolific path.  On the same line, it is proposed to get rebate on the construction material will also boost low cost housing.

I think, Finance Minister is thinking for the long term prospective to increase the revenue and to establish the strong economy of country.”

Dhaval Ajmera, Director-Ajmera Realty: With the announcement of no Service Tax for houses under 60 square meters in non-metros and under 30 square meters in metros, the Union Budget 2016 is a good support for affordable housing. With the reduction in the service tax, it will be a boost as it will eventually bring down the cost of construction.

In terms of the financial sector, with the removal of the dividend distribution tax on REIT’s, it will enhance a lot of REIT’s investment in the commercial & residential sectors in the markets. This move will definitely be an investment boosting arm for people from foreign countries as well as India.

Overall the budget has given a big boost for affordable housing segment, however minor tweaks are required in terms of the metro city sizes which we will request the government to reconsider.

We feel that the size needs to be improved upon in terms of metro cities as 30 square meters is very less and it will not serve the complete purpose of affordable housing in metro cities. Hence, the area should be kept at par with non-metro cities which will truly bring about a positive change in the sector’.

Yash Gupta, SMD and Country Head, Hines India: The Government has been working towards removing bottlenecks for REIT listings but Dividend Distribution Tax had remained a key pending issue. The announcement to do away with Dividend Distribution Tax will lead to unlocking of funds. This will further push demand for rent yielding Grade-A office spaces across India. 

Other tax breaks for low to mid-income housing will send out strong signals to home buyers who were waiting for some positive announcement on this front,

Neeraj Gulati, MD, Assotech Realty: The announcements in the budget are focussed on the affordable housing segment with emphasis on private public participation. The deduction of Rs 50,000 on the interests to be paid by first-time home owners on a loan of Rs 35 lakhs for a ticket price of not more than Rs 50 lakhs will lead to a rise in demand for mid-income and affordable housing segment.

Secondly, the announcement of 100% deduction on profits for those developers undertaking affordable housing projects in metros and other areas and the proposal for service tax exemption on construction of affordable houses up to 60 sq mtr under Central and Sate Government schemes will provide direct boost to the Government’s intent to get more private developers in the affordable housing segment.

Sriram Mahadevan, Business Head – Happinest, Mahindra Lifespaces: On announcements pertaining to affordable housing in Budget 2016. Also attached is his picture. Mahindra Lifespace Developers Ltd., the real estate and infrastructure development business of the $16.9 billion Mahindra Group, is a leader in sustainable urban development, through the creation of residential and integrated large format developments. Mahindra Lifespaces has presence in Affordable Housing segment through its offering ‘Happinest’.

It is heartening to note how the government has taken cognizance of the importance of the Affordable Housing segment towards making ‘Housing For All by 2022’ a possibility.  This budget provides some of the long-standing stimulus needed to drive growth in the segment.

Additional exemption of Rs. 50,000 on housing loans up to Rs. 35 lakh for first time home buyers (on homes that cost upto Rs. 50 lakh) coupled with exemption of service tax on construction of affordable houses up to 60 square metres will reduce the cost of home ownership for the price-sensitive affordable home buyer.

Furthermore, the exemption on profits for developers on housing projects (upto 30 sq metres in four metros, 60 sq. metres in other cities) will incentivize increased participation by developers towards creation of much needed affordable housing stock in the country.  Overall, these are supportive policies in the right direction that can boost consumer confidence and spur development in the segment.

David Walker, Managing Director, SARE Homes: Union Budget 2016-17 is a mixed bag for the real estate sector. We are pleased to see that the government has stuck to the 3.5 per cent fiscal target as this will give head room for the reduction in interest rates which will benefit all sectors of the economy and particularly the housing sector.

The Finance Minister’s proposal that any distribution out of SPV income to REITs and INVITs with specified shareholding not being subject to Dividend Distribution Tax (DDT) will spur investments in REITs. The additional exemption of Rs 50,000 for housing loans up to Rs 35 lakh – provided the house cost does not exceed Rs 50 lakh – is welcome too.

Excise duty exemption on ready-mix concrete used in construction sites augurs well for the construction industry. While plans to meet the fiscal deficit targets are a good move, some of the key issues in the real estate sector have been given a skip. The real estate sector’s expectations of being accorded Industry and Infrastructure status have not been accepted. Furthermore, the fact that there was no mention about action being taken to expedite GST and the Real Estate Development Bill is disappointing.” 

Anshuman Magazine, CMD, CBRE South Asia: Overall this has been a good budget for the industry. The most encouraging announcement has been the exemption of Real Estate Investment Trusts (REITs) from Direct Distribution Tax (DDT). While the fine print on the announcement needs to be reviewed, it is hoped that having cleared this hurdle, companies will come forward to set up REITs, which will be a game changer for the industry.

Corporate real estate will additionally benefit from the announcement of the sunset date for exemption of fiscal incentives to Special Economic Zones (SEZs) being pushed forward to March 2020.

Although more could have been done to revive housing demand in the country, the Government has extended incentives on various fronts, especially for the Affordable Housing segment. It has announced 100% tax exemptions for private players constructing affordable housing of 30 sq.m in the four metros and 60 sq.m in other cities, approved during June 2016 to March 2019, and completed within three years of the approval.

The Finance Minister also announced 100% excise duty exemption for Ready Mix Concrete. An additional rebate of INR 50,000 per annum on housing loan interest for first time home buyers in the affordable segment for loans not exceeding INR 35 lakh, and for properties not exceeding INR 50 lakh, was also announced.

Additionally, rental housing has been provided an impetus with an increase in the House Rent Allowance (HRA) deductions. Those not receiving any HRA can now avail a standard deduction of INR 24,000; while for those availing HRA, the limit has been raised to INR 60,000 per annum for rented accommodation.

The infrastructure sector was particularly in focus in the recent Budget announcements, with a record allocation for roadways and railways. There is also increased focus on Greenfield ports as well as on the upgradation of underutilized / unused airports and airstrips. In addition, various schemes have been announced to rejuvenate private sector interest in infrastructure investments, via Public–Private Partnership (PPP).

The ease of doing business was in focus too. Changes in the Companies Act, and early registration of new companies and start-ups will facilitate the business environment in India.

It is hoped that simultaneous implementation of all these initiatives will be followed through, while the long term funding issues for the real estate and construction sector will also be suitably addressed.

Prashant Solomon, Managing Director, Chintels India: Union Budget 2016 is comprehensive and well-rounded with some positive initiatives for the real estate sector. 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 will benefit developers in the low-cost housing space.

Deduction for additional interest of Rs. 50,000 per annum for loans up to Rs. 35 lakh for houses under Rs. 50 lakh will encourage low-end buyers to invest in property. Excise duty exemption on Ready Mix Concrete (RMC) will lower the cost for housing construction and, in turn, encourage builders to pass on the benefits to home buyers.

Overall, we expected Finance Minister to be more aggressive for the real estate sector during this budget regarding issues like industry status and single window clearance.”

Anubhav Jain, Director, Silverglades: While it is a pro-poor and pro-growth Budget, there have been no major announcements for the real estate sector. Developers were looking forward to credit break and single-window clearance for projects, which the government has failed to announce. On the other hand, additional tax deduction of Rs 50,000 for houses up to Rs 50 lakh and no excise on RMC for self-consumption are positive initiatives to encourage affordable home buyers and developers. 

Ajay Nahar, MD, Nahar Projects: With 100 percent deduction of profits of undertakings from housing projects, the housing industry will see a rise in demand. India needs over 100 million houses in the near future which will help increase the demand for new homes especially the lower income group. Housing for all by 2022 is a great initiative as the urban areas and Tier II cities can now be easily accessible. This will help developers to build more houses and the reduced tax benefits will add to the benefits of new homebuyers.

Alternatively, this will also have a direct impact on volume of cement and steel to be consumed in this sector wherein developers seek to build more affordable housing for lower to mid income group households.  This initiative will also be a good move for individuals who opt for rental homes.

Buying capacity of the middle income, upper middle and even the HNIs will increase due to less tax burden and the exemption on home loans for first time homebuyers. With regards to the boost in infrastructure, INR 2, 18,000 cr has been allotted for construction of new roads and railways.

This will see more flyovers and better roads and connectivity options and hence this will have a direct impact on the housing sector, which is a positive sign. Developers can now look forward to building new homes in Tier II and Tier III cities and far suburbs which will increase the overall sentiment in the housing sector.

The Goods and Services Tax Bill could be a game changer for the real estate industry addressing the problem of multiple taxation and bringing in transparency in the sector.

Ankur Jindal, COO, Sales, SVP Group: ‘Housing for All’ became the real estate focus of the budget today. The direct and indirect tax benefits for affordable housing should boost the government’s smart city initiative. Additional deduction of interest would incentivise the first time homebuyers to buy their dream home. The REIT/InvIT market should finally take off now that the finance minister has granted dividend distribution tax exemption.

Now people can go for retirement homes, with a loan upto 35 lacs. They would get an additional 50,000 tax break. Seniors will have to get loan with the help of their children as they may not be directly eligible. Overall, the budget should have a progressive effect on real estate sector.

Manju Yagnik, Vice Chairperson, Nahar Group: We welcome the Finance Minister Mr. Arun Jaitley’s Budget 2016 presentation today which is a positive budget over all. This will give boost to the economy in long run as it focuses on the expenditure rather than giving direct rebates. This budget as expected proposes to give a larger thrust to affordable and low cost housing, for buyers and for developers alike, bringing relief to the low income group and mid segment of home buyers, who constitute the bulk of housing demand in India.

This has the potential to spearhead growth of the ancillary industries allied to realty sector, increasing job opportunities, thus creating a positive sentiment for the overall housing sector.

The proposal of 100% deduction to undertakings for construction of affordable housing will give a boost to affordable housing segment in the country.

No service tax for houses built less than 60 sq. meters in non-metro and 30 sq mt in metro is a good move as it will promote housing catering to the middle class who comprise the largest segment of home buyers in the country.

Exemptions provided on housing loan interest for first time homebuyers and affordable housing will bring little relief for the residential property market in metro cities where there is maximum demand. Scrapping of dividend distribution tax on Real Estate Investment Trusts (REITs) would help developers to raise funds, as this makes investments attractive for investors.

Rental housing will get a boost as those living in rented houses will get a deduction benefit from Rs 24,000 to Rs 60,000 under Section 88G.

First home buyers can avail an additional exemption of housing loan interest of 50,000 provided value of house does not exceed Rs 50 lakh comes a blessing for mid housing segment of home buyers.

The Finance Minister’s assurance to pursue implementation of GST, reform measures pending before parliament has raised our hopes as this was one of our budget expectations from the Finance Minister.

Overall, as compared to the previous two budgets, this budget has been reasonably good taking into account some of the sector’s requirement though not entirely. We would be happy if the government would make a mention of our other demands such conferring industry status, single window clearance, subsidized land rates etc.

Kedar Joshi, CMO, Ahuja Constructions

The real estate industry had been holding a lot of hopes from Union Budget 2016. The budget brings in mixed bag of reactions to the real estate industry which has been hit by slowdown and has been definitely looking for a turnaround. First time homebuyers definitely have a sign to cheer.  The budget has provided an exemption of Rs. 50,000 for housing loans up to Rs. 35 lakh, but at the same time it has to be ensured that the  cost of house is not above Rs. 50 lakh.

The housing loan interest for the first time home buyers and affordable housing would boost the stressed residential sectors. The budget brings in a boost to low cost housing and this could bring in the demand for compact homes. The move of removal of service tax on houses which are less than 60 sq meters will see a sigh of relief to the middle class & lower middles class homebuyers.  A nod to dividend distribution tax on REIT’s will bring in stability and would combat few bottlenecks. We welcome Budget 2016 that will make housing for all a reality.

Vishal Gupta, MD, Ashiana Housing: The budget would promote real estate sector, especially the affordable housing. An overall tax simplification has been provided for lot of us doing business here. It gives incentives to the affordable housing by exempting from service tax houses upto 60 sq m. In a relief to common man the budget provides no Service Tax for houses built under 60 square metres, besides offering additional exemption of Rs. 50,000 for housing loans up to Rs. 35 lakh, provided cost of house is not above Rs. 50 lakh.

This budget is going to boost the stressed housing sector exemptions provided on housing loan interest for first time home buyers is a great incentive to the real estate sector.

R . K Arora, Chairman, Supertech: The Union Budget 2016 is a disappointing one for the industry in general and particularly for Real Estate Sector which was pinning great expectations on it.  The only significant relief announced in the Budget for real estate, is exemption of Rs. 50,000/- for housing loans up to Rs. 35 lakhs and that too on houses costing up to Rs. 50 lakhs.  This nominal relief  is available to a very few and not to large section of homebuyers as the cost of houses has gone beyond Rs. 50 lakhs.

Another relief the Finance Minister announced in the Budget is service tax exemption for housing construction of houses less than 60 sq. mtrs. which too is inadequate and would not be available to large section of  homebuyers buying 2 BHK and above flats.

The announcement of 100 per cent deduction for profits to an undertaking in housing project for flats up to 30 sq. metres in four metro cities and 60 sq. metres in other cities, approved during June 2016 to March 2019 and completed in three years makes it  mandatory to obtain all clearances and complete the project in 3 years.  Further,  the developer is liable to pay MAT also.

Further, the addition of 0.5% Krishi Kalyan Cess on all services would cause additional burden on homebuyers who are already burdened with increase in local stamp duties and sector rate increases in addition to cost escalation.

None of the grievances of real estate sector for providing bank finance has been addressed in the budget and the Real Estate is made entirely dependant on high cost finances.  There is also no proposal to encourage investment in real estate.

Aman Singh Gehlot, Director, Ambience Group: The Union Budget 2016 has allowed 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. This shows the government’s commitment towards its promise to provide housing for all by 2022.

Other proposals in the budget like additional exemption of Rs. 50,000 on housing loans upto Rs. 35 lakh for purchase of houses costing up to 50 Lakh, service tax exemption for first time home buyers and the focus on affordable housing are likely to lift buyer sentiment in the real estate sector and give a much needed boost to sales of housing units.

The Budget has also made investing in real estate sector attractive once again by scrapping dividend distribution tax (DDT) component for Real Estate Investment Trusts (REITs). This will make REITs an attractive investment option and allow developers to monetize their projects.

Sanjay Dutt, Managing Director, India, Cushman & Wakefield: The Union Budget has placed greater thrust on Affordable housing and has brought about a much-needed cheer for the real estate sector. The finance minister’s announcement of 100% deduction in tax from profits of affordable housing developers would increase their focus on the segment that has been largely ignored owing to business viability issues.

However, the caveat of housing space limits (30 sqm in 4 metro cities and 60 sqm in other tier II cities) should have been equitable, and the three-year window for project completion could have been for a longer duration as approvals and construction typically take a long time. The Centre also announced service tax exemption for construction of affordable housing (as per prescribed limits) under state and central housing scheme.

These incentives for developers would help them focus on construction of affordable housing projects across metros and non-metros cities. In order to increase affordability of homes for first-time homebuyers, an additional Rs 50,000 tax deduction on interest paid is applicable as far as loan amount is less than Rs 35 lakh and house value is less than Rs. 50 lakh. While this is a welcome reform, the limit of Rs 50 lakhs as house value is on the lower side in most metros and could have been increased.

The Union Budget also announced increase in deduction to Rs. 60,000 under section 80 GG for those who live in rented accommodation. All these exemptions and incentives would go a long way in increasing the affordability of consumers and incentivizing developers, in line with the government’s ‘Housing for All by 2022’ initiative.   

Anuj Puri, Chairman & Country Head, JLL India: To give him due credit, the Finance Minister has definitely made a concerted attempt to manage expectations with a balanced budget. While three of the real estate sector’s major expectations – increased HRA deduction, removal of DDT from REITs and boost to affordable housing by allowing 100% deduction on profits made by entities constructing them – have been addressed, the Budget offered no financial protection from project delays to home buyers.

Most first-time home buyers in the major metros will be left out of the additional Rs. 50,000 tax exemption announced today, as it is applicable only on houses worth up to Rs. 50 lakh with loans of up to Rs. 35 lakh for houses. This announcement will mostly benefit first-time home buyers in tier-III and tier-II cities. The infrastructure sector was a major beneficiary today.

The biggest announcement with implications for the real estate sector in India was removal of DDT from real estate investment trusts (REITs).

REITs could become a reality soon – 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.

Road infrastructure and new land opening up – 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. Roads infrastructure has great influence on real estate development, particularly with the new land it opens up for development through highways and feeder routes.

Infrastructure creation – The Budget has outlined revival plans for non-functional airports in partnership with state governments, with a vision to spend around INR 100-150 crore on each airport to make them functional again. This will a boost to infrastructure in many tier-II and tier-III cities, and is without a doubt positive for their real estate markets. A select few projects that are commercially viable with good ridership could pick up pace in the near term.

Release of land – Going by today’s Budget announcements, Central PSUs are going to be encouraged to reduce their exposure to excess land holdings. While availability of land for development is definitely a constraint and the Land Acquisition Bill is increasingly difficult to implement, an alternative route is to make use of land holdings of central PSUs. We have seen this been done in the railways budget, as well.

Retail sector – The revamp of the Model Shops & Establishment Act is a welcome move and could help the retail sector considerably. Unorganised retail could receive a fillip as smaller shops will now also be given the option of remaining open for all seven days of the week, like organised malls. While this will make the high street retail real estate proposition a bit more attractive, we will have to wait and see the implications from a labour market perspective.

Office occupancy perspective –  The Budget made a strong case for promoting start-ups in India with 100% tax rebate on profits announced for them for three years. In the recent past, we have seen successful start-ups (particularly in the technology and e-Commerce sectors) becoming big and occupying a commendable share in office space. As more start-ups get encouraged to commence operations, we expect developers to offer more small mixed-use properties or arrangements for sharing of office space to cater to this segment.

Importantly, clarity is expected on GST implementation. The House got adjourned today when the Financial Bill came up but the FM had earlier said the government will strive to get it passed.

CBRE declares Union Budget 2016-17 high on expectations

Posted on by Track2Realty

As the Union Budget 2016-17 draws closer, India’s real estate sector hopes for its key expectations to be addressed in the Finance Minister’s announcements later this month.

Union Budget, Finance Minister, Fiscal Deficit, Budget Expectations, Monetary Policy, Indian real estate news, India property news, Track2Realty Having launched a series of critical urban development initiatives—including the Smart Cities Mission, the Atal Mission for Rejuvenation and Urban Transformation (AMRUT), and the Pradhan Mantri Awas Yojana (PMAY), otherwise known as the “Housing for All by 2022” scheme – it is now time for the Government to present a clear outline on the way forward on these as well as on their progress so far.

Amid indications that the government will continue with its ambitious reform agenda in 2016, addressing core issues concerning infrastructure development, affordable housing, land acquisition, taxation norms for Real Estate Investment Trusts (REITs), and opening up long term funding for the retail sector et al. becomes imperative.

Following is a list of expectations the real estate sector has from the upcoming budget:

Implementation of investor-friendly REITs

A complete exemption for REITs from taxation on distribution of dividends and exemptions from stamp duties.

Urban infrastructure

Increased outlay for infrastructure sector, announcements of new projects and facilitating implementation of existing urban infrastructure projects – especially those promoting connectivity at a regional and national scale.

Increased focus on public–private partnership-led infrastructure creation by offering tax incentives to the private sector, and implementation of new avenues of infrastructure funding such as infrastructure investment trusts.

Promotion of ease of doing business / single window clearance mechanism

While land and construction costs make up majority of the share of the overall cost, construction delays add to the woes of homebuyers. Undoubtedly, the procedural inefficiencies in the system can be held culpable as developers have to acquire multiple approvals from numerous authorities, and obtaining requisite clearances can run into months and years.

It is imperative for the Government to promote a single-window clearance mechanism or at least ease the approval process for large scale real estate and infrastructure projects.

Clarity on urban infrastructure schemes

The government must elaborate on the present status, funding and implementation mechanism for the housing and urban infrastructure schemes—the Smart Cities program, AMRUT and PMAY. A seamless integration of the three schemes, and provision of sufficient funds at each stage of development, while addressing time and cost overruns along with regulatory conflicts, if any, is important.

Promotion of affordable housing

The Budget would do well to adopt a uniform definition of affordable housing across the country, which is more in line with the market realities, rather than restricting it to projects involving unit sizes of 25–40 sq. m. only (the PMAY defines affordable housing as units measuring 30 sq. m.).

A greater thrust on reduced mortgage rates, increased funding to the National Housing Bank (NHB) for cheaper mortgages, more standardized costs of building materials, faster approval processes to bulk up the pipeline, and a targeted fund allocation for low cost housing projects across states are steps that can generate a strong momentum in this segment.

As the state lacks the capability to develop affordable housing at a large scale, private developers should be encouraged to enter affordable housing development by the offer of land at subsidized rates, tax incentives and rebates on construction materials.

Clarity on sunset clause for exemptions to SEZs

The Government must clarify on the Finance Ministry’s proposal to insert a sunset clause to phase out incentives for Special Economic Zones (SEZs) by March 2017. Developers and occupiers of SEZs hope for a roll back of this notification, fearing that the move will dampen investment sentiments and hit export volumes. Relaxation of the Dividend Distribution Tax (DDT) and Minimum Alternate Tax (MAT) imposed on SEZs in 2011 will also be welcome moves.

Home loan interest rates and individual tax slabs

Although the Central Bank reduced interest rates to 6.75% through several rate cuts last year, these are yet to be passed on to homebuyers by banks. Directives are sought from the Government for the banking sector to implement these rate cuts on ground.

The government should also work in tandem with the Central Bank and announce banking sector reforms, and implement privatization of state run banks that might help in reducing the share of Non-Performing Assets (NPAs) in commercial banks, aiding monetary easing.

Rebates are also sought for homebuyers in the form of relaxed individual tax slabs that might improve the lack of demand in the housing sector, incentivizing growth drivers to return to the market. Industry expectations also include the announcement of tax rebates on housing purchases and mortgages to encourage homebuyers.

Clarity on pending legislations 

Clarity is sought on the passage of the critical Land Acquisition Bill in Parliament. Further development in corporate real estate, housing, retail real estate, and infrastructure segments, etc., are all dependent on the passage of the same. Greater clarity is also sought on the pending Real Estate (Regulation and Development) Bill. It is hoped that it will be balanced between end-user as well as developer interests.