After much expectation the Union Budget 2016-17 neither addresses the concerns of the sector nor the homebuyers.
The Union Budget 2016-17 has been a clear damp squib for the real estate sector. As a matter of fact, it is neither making the developers nor the homebuyers happy purely from the business and investment point of view. Some of the lofty promises are anyway driving the optimists with expected infrastructure developments over a long period of time.
There is no clear takeaway for the housing market and the 0.5 per cent hike on the Service Tax is an additional burden on the homebuyers. There is nothing encouraging for the middle class homebuyers who are major demand drivers in the cities across India. The expected change in the personal Income Tax exemption slab that has not been given has further dampened their spirit. There is no encouragement for women homebuyers either.
Economic analysts point out that the budget does not lead to more employment generation and there is no scope of earning disposable income for urban middle class. These are the key necessities to fuel the housing demand in the cities. Furthermore, Rs. 50,000 rebate on housing up to Rs. 50 lakh is too nominal relief in top eight cities where most of the unsold housing stocks are painfully burdening the developers and affecting the business cycle and economy.
Even from the developersâ€™ standpoint, there is no provision that could ensure lower input cost of the projects. A section of analysts even believe that the HRA benefits announced in the Budget are not so encouraging to buy house. Additional surcharge of 15% on the income over Rs. 1 Crore is a dampener for the luxury housing as well.
Anuj Puri, Chairman & Country Head, JLL India calls it a below expectations budget but with some major positives. Giving due credit to the Finance Minister he says the government has definitely made a concerted attempt to manage expectations with a balanced budget. While three of the real estate sectorâ€™s major expectations â€“ increased HRA deduction, removal of DDT from REITs and boost to affordable housing by allowing 100 per cent deduction on profits made by entities constructing them â€“ have been addressed, the Budget offered no financial protection from project delays to homebuyers.
â€śMost first-time homebuyers 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 homebuyers in tier-III and tier-II cities. The infrastructure sector was a major beneficiary today,â€ť says Puri.
However, Vipul Shah, Managing Director, Parinee Group asserts that the government maintaining fiscal deficit target of 3.5 per cent is very credible for the financial markets and the economy and will pave the way for a strong and stable sustainable economical growth. RBI can now look to ease the monetary policy further in the current cycle with the government sticking to its fiscal deficit roadmap.
â€śThis will in turn boost the real estate sector. Increased infrastructure and rural spending should kick-start the investment cycle and should have a cascading effect in the economy. Among other measures announced for the industry, 100 per cent deduction of profits for new housing projects bodes well for Tier-II and Tier-III Cities is welcome. However, the limit on flat sizes of 30 square meters in metro cities is just not enough to have a meaningful impact. The sizes should have been at par with the non-metro cities to boost the housing sector in metro cities as well,â€ť says Shah.
Immediately after the Budget speech the sector in its collective consciousness is into cost & benefit analysis. The overtly critical voices have not been heard as yet. That does not dilute the fact that the budget has disappointed many within the built environment of Indian real estate. The homebuyers are anyway left high & dry. In all probability the fence sitters will continue to be in a wait & watch mode since there is hardly any tangible encouragement to buy a house, especially in the top eight cities.
By: Ravi Sinha