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Budget compensation for demonetisation hit realty

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Bottom Line: Can the expected budget bonanza compensate the demonetisation hit Indian real estate market?

India Budget, India Finance Minister, Indian Fiscal Policy, India Monetary Policy, Union Budget 2014-15, India real estate news, Indian realty news, India property market, Track2Media Research, Track2Realty“The sector has suffered badly due to the demoentisation and our business have been forced to go through the worst cycle. The recent interest rate cut promises that the government might give some extra sops to the home buyers but my concern is about the larger interests of the business. Can the government compensate the real estate business that has been hit due to demonetisation with a home buyer friendly budget,” questions a developer in Gurgaon while requesting anonymity.

This is not something that only this developer is asking. As a matter of fact, within the built environment of Indian real estate a large section of analysts privately admit that the demonetisation has done more damage to the real estate business than even the Lehman crisis. Some call it home-grown Lehman crisis while others term it as self-inflicted money trap.

The larger issue today is: Can the Union Budget 2017-18 change the market dynamics? Can some interest reduction and other sops uplift the home buyers’ mood and market simultaneously. The opinion is divided but what can be vouchsafed is the fact that budget is being presented immediately after hard hit on the realty sector with demonetization. It is hence being seen as either a budget with major relief or more tough days ahead.

Demonetization hit real estate & budget expectations

  • Demonetisation has hurt the Indian economy in general and real estate in particular a big way
  • Some call it home-grown Lehman crisis while others term it as self-inflicted money trap
  • The housing sales have come to a standstill and new launches have stopped
  • The rate cut has thus far not shown any sign of increased market transactions
  • The Union Budget can at best reduce interest rate and encourage home buying, but the ground realities of economy and job market discouraging 

Kaizad Hateria, Brand Custodian and Chief Customer Delight Officer, Rustomjee Group maintains that the real estate sector has always been upbeat with the upcoming budget and this time too one is optimistic about the future. Real estate contributes 12% to the GDP, second largest after agriculture. Real estate supports more than 150 ancillary industries. So, any challenge to real estate is challenge to the economy and any opportunity for real estate is an opportunity for the economy.

“2017 is a year of positive reforms. This year we will see the after effects of demonetisation – an axe to cut out black money, RERA – real estate regulatory being formed – a watch dog, GST being introduced – tax simplified and finally the implementation of the new development plans – a well planned city. All of these leading to more transparency, reliability, timely development and thus benefiting the consumers at large,” says Hateria.

Parth Mehta, Managing Director, Paradigm Realty categorically says that demonetization has impacted sales in real estate sector. He demands that there should be some measures in the upcoming budget, for example cut in the tax rates for middle income groups which will lay extra money in people’s hands. “Also, stamp duty reduction can give some breather. Several government approvals should be executed appropriately. Single window clearance has to be introduced.”

Vivek Mohanani, Joint Managing Director of Ekta World admits that post the announcement of demonetization, the real estate sector has seen a temporary hit. However, these changes are surely in the larger interest of the sector and its customers. It will bring about more transparency in the sector. The upcoming Union Budget announcement is expected to bring cheer to both buyers and developers.

“The real estate prices are predicted to increase marginally, as with demonetization in place, stringent rules & regulations are to follow the realty sector in the year 2017 which will give a raise to the sector. There is also a high possibility of the execution of GST in the budget 2017-18, which will relieve the buyers from paying multiple taxes, in turn boosting the purchase of properties,” says Mohanani.

Analysts suggest that with Interest rates coming down sharply at the very beginning of 2017, the demand for end use home buying will not only revive but also catch steam over quarters of 2017. Reduction in interest rates not only reduces interest cost but also increases affordability. The budget should hence focus more on the end user home buyers.

The moot point, however, still remains unanswered as no one would like to address it on record. The state of Indian economy does not allow the Union Budget to compensate the real estate sector for the hit that it has taken with the demonetization. The long term reforms are only projections as of now, and the short term losses can hardly be compensated with the Union Budget 2017-18. The developers nevertheless are living with hope and prayer.

By: Ravi Sinha

Was rate cut precursor to more sops for realty in budget?

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Bottom Line: The rate cut ahead of Union Budget 2017-18 has raised hopes that the policy makers are working on more bonanza for the homebuyers.

Union Budget, Union Budget 2016-17, Finance Minister, Housing demand in Budget, Fiscal Deficit, Monetary Policy, Repo Rate, NRI investment, India real estate news, Indian property market, Track2Realty, Budget disappoints real estateThere has not been any precedence of major interest rate cut ahead of Union Budget. On the contrary, the major financial policy decisions are put on hold or deferred ahead of the budget to make it announce during the budget speech of the Finance Minister. However, the substantial interest rate cut ahead of the Union Budget 2017-18 this time around has pleasantly surprised the market and the home buyers.

The analysts are even calling the year end speech of the Prime Minister Narendra Modi that led to the banks cutting down the interest rate as mini-budget. It is hence expected that the the rate cut has only been symbolic and major substantial gains are in store to be unlocked with the Union Budget.

Was the rate cut really a precursor to more sops for realty sector in budget? At least the larger stakeholders of the Indian real estate would like to believe this. Kaizad Hateria, Brand Custodian and Chief Customer Delight Officer, Rustomjee Group says yes it could be a precursor to more sops for real estate sector. According to him, the developers are expecting regulation of norms which will enable seamless transaction for customers and stakeholders.

“For example, clarity and uniformity in DCR norms, single window clearance, time bound approvals, cluster redevelopment schemes to be more attractive, FSI and TDR norms and seamless flow in stamp duty taxation. We shall expect sops in clarity for the benefit of the customer. With financially disciplined developers having focus on its customers and the timely delivery of their projects, consolidation within the real industry is what we expect in the year 2017. Also, with the implementation of RERA, we foresee confidence coming back among buyers,” says Hateria.

Major budgetary bonanza for home buyers?

  • The interest rate cut that followed with Prime Minister’s year-end announcement indicates major bonanza for home buyers in Union Budget
  • No precedence of sudden rate cut ahead of budget suggests the need for feel good factor was immediately felt while major bonanza is being worked out
  • Tax incentive to home buyers clearly indicate the government wants to reach out to middle class home buyers post demonetization
  • Finance Ministry sources claim the specifics for the home buyers in budget still being worked out   

Parth Mehta, Managing Director, Paradigm Realty says he is pretty hopeful of more policies like tax benefits for affordable housing, home loan interest rate reductions, relief in income tax for individuals.

Vivek Mohanani, Joint Managing Director, Ekta World also believes that the year 2017 will definitely be a good year for the real estate sector, helping the sector with an upsurge with the changes that have taken place in the current financial year.

“The coming year is expected to write a new growth chapter in the realty sector which include the reduction in interest rate, increased FDI, and increase in loan portfolios. With the government giving sufficient interest rate cut precursor, the realty sector is definitely going to see buoyancy in the Union Budget,” says Mohanani.

There are reasons to believe that the policy makers are in a crisis management mode and hence the rate cut was immediately announced. Had it not been the case this could have been put on hold and announcement would have been made in the budget speech. However, the government found it deemed to offer something instantly while other sops for the home buyers were being worked out.

The sources with the Finance Ministry also confirm that the government is also working out the modalities to provide higher tax incentives on home loans to boost the real estate business that has been worst affected with the demonetization. The sources even claim that the government cannot afford to completely ignore the issue now since it goes against the oft-repeated commitment of ‘Housing for All’.

A tax incentive post the demonetization that has made the banks flush with funds would send a strong message to the market. The tax concession is the only way out to not only keep the sector back on track that contributes significantly to the GDP (Gross Domestic Product) but also reach out to the middle class Indians across the country.

Thus, it could be vouchsafed to say that the rate cut being referred as the mini-budget in popular parlance has been the precursor to substantial home buyer bonanza package in the Union Budget 2017-18.

By: Ravi Sinha

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.

Realty not complaining as budget touches pain points

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The Union Budget 2016-17 only touches upon some pain points without addressing larger concerns; yet sector not complaining.

Union Budget, Union Budget 2016-17, Finance Minister, Fiscal Policy, Fiscal Deficit, Monetary Policy, Budget disappoints real estate, Incentive for home buying, NRI investment, Track2Realty, India real estate news, Indian property marketThe Union Budget for the last few years was a matter of hurt burn for the real estate sector. The post budget reactions always gave the impression as though the policy advocacy had gone unheard by the respective Finance Ministers. After all, the major demands of the sector vis-à-vis industry status, single window clearance and easy finance availability were never addressed.

The Union Budget 2016-17 has yet again not addressed any of these concerns and yet surprisingly no one is complaining this time around. This probably heralds a new beginning of policy advocacy where the power corridors and the developers seem to have started understanding what is feasible and what is not.

More importantly, probably the line that bifurcated between the wants and needs are also getting blurred.  At least the responses of the leading players indicate this.

JC Sharma, VC & MD, Sobha Limited admits that 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.

“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. The proposal that distribution made out of income of SPV to the REIT and Infrastructure Investment Trusts (INVITs) is likely to promote REIT and attract new investments,” says Sharma.

Sachin Sandhir, Global Managing Director – Emerging Business, RICS says the Finance Minister has managed to give the real estate, construction & infrastructure industry a much needed boost by combination of investment measures, easing of bottlenecks and incentives to encourage growth – specifically for the much needed areas of affordable housing and REITs.  It is a forward looking budget with tremendous focus on leveraging technology to implement big ticket reforms – be it an e-portal for farmers, digital repository for education or tax accountability measures.

“Dispute resolution mechanism for construction contracts along with credit rating system will be highly beneficial for this important but dispute ridden sector. Removal of DDT on REITs will encourage REIT listings, which itself can be a game changer for the Indian real estate market. The budget has also given the affordable housing market its due importance and announced series of measures in line with the housing for all scheme,” says Sandhir.

Kedar Joshi, CMO, Ahuja Constructions nevertheless maintains that 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 homebuyers and affordable housing would boost the stressed residential sector. 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 middle class homebuyers. A nod to dividend distribution tax on REITs will bring in stability and would combat few bottlenecks. We welcome Budget 2016 that will make housing for all a reality,” says Joshi.

Rattan Hawelia, Chairman of Hawelia Group calls it a mix budget where the empty side of glass is larger than the filled side. He accepts that the increase in limit of exemption of home loan interest for first time homebuyers is surely a positive move for affordable housing. This will boost the residential sector in many cities. But that is not enough to fuel the housing demand or revive the Indian economy in general and housing market in particular. Scrapping of dividend distribution tax on REITs would certainly benefit the already stressed real estate sector

“Certain concerns and long pending demands are still not addressed. The incentives might prove to be symbolic in nature than substantive change on ground. The reason is that neither the developers have been incentivized with low input cost nor the demand of housing has been catalysed with more job creation and disposable income. Unless that happens, even the low ticket houses will not sale due to affordability concerns,” says Hawelia.

David Walker, Managing Director, SARE Homes also calls Union Budget 2016-17 a mixed bag for the real estate sector. He expressed pleasure 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,” says Walker.

So, the Union Budget has proved to be a mix bag for the sector. However, there are less voices of dissent, compared to the last few years. And the reason is better understanding between the policy makers and the real estate developers. There is no question by the sector on the intent of the Finance Minister even though they disagree with some of the budgetary allocations, or the lack of it.

Major Hits

  • Deduction for additional interests of Rs. 50,000 per annum for loans up to Rs. 35 lakhs
  • 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
  • Exemption for rent paid goes up from Rs. 24,000 to Rs. 60,000
  • Proposal to digitize land records is in the right direction
  • Dividend Tax on REITs being scrapped
  • Proposed 100% deduction to undertakings for construction of affordable housing
  • Budget has increased the time line for construction from three years to five years in Section 24, for claiming deduction

Glaring Misses

  • Service Tax hike to burden homebuyers
  • Nothing encouraging for middle class homebuyers
  • Personal Income Tax exemption slab not changed
  • No encouragement for women homebuyers
  • No employment generation and no scope of earning disposable income for urban middle class
  • Rs. 50,000 rebate on housing up to Rs. 50 lakh nominal relief in top 8 cities
  • No provision to lower input cost of developers
  • Additional surcharge of 15% over income of Rs. 1 crore dampener for luxury housing
  • No mention of Industry status or Infrastructure status of affordable housing
  • No mention of Real Estate Regulator 

By: Ravi Sinha

No major incentive to fuel housing demand in Budget

Posted on by Track2Realty
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Housing demand is a serious matter of concern and the business needs a policy booster but the Union Budget 2016-17 proved to be an uneventful exercise.

Union Budget, Union Budget 2016-17, Finance Minister, Housing demand in Budget, Fiscal Deficit, Monetary Policy, Repo Rate, NRI investment, India real estate news, Indian property market, Track2Realty, Budget disappoints real estateThough everyone within the policy corridors acknowledges the fact that the sector has the potential to revive the economy, the Budget fails to acknowledge those concerns. Though there are certain symbolic gestures that prima facie appear to be encouraging, on a closer scrutiny it is quite obvious that the Budget has completely failed to address the larger & immediate concerns of one of the key catalysts of Indian economy.

As a matter of fact, the Union Budget has neither addressed the concerns of the homebuyers nor the developers. Of course, there are certain promising announcements but those symbolic gestures are long-term measures. In short-term there are hardly any substantive gains and the sector has been left high & dry.

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 granted 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 developers’ standpoint, there is no provision that could ensure lower input cost of the projects. Additional surcharge of 15% on the income over Rs. 1 Crore is a dampener for the luxury housing as well.

Certain announcements like the digitization of land records and clarity over Dividend Distribution Tax (DDT) no doubt will go a long way in terms of ease of doing business, but the immediate concerns of the sector have been by and large ignored.

Zaheer Majeed Memon, Partner Zara Habitats maintains that pertaining to real estate sector in specific although there has been no significant grants or benefits from this Budget, there has been a tax relaxation to first time home loan takers of deduction of Rs 50,000 which is quite encouraging.

“Also, there has been a service tax waiver to houses built under 60 square meters which would help in the affordable and mid budget segment. However, the DDT has attracted an additional tax for dividend incomes beyond Rs.10 lakh which is significantly dampening for certain segments and various sectors,” says Memon.

Arvind Jain, Managing Director, Pride Group categorically calls the Union Budget 2016-17 far below expectations. He maintains that some leeway has been given to first-time home loan borrowers, but the relief will not boost demand in the metros.

“Service tax has been exempted for developers who are focused on constructing affordable housing with unit sizes not exceeding 30 square meters in the larger cities and 60 square meters in the smaller cities. This is a significant plus, and in line with the incumbent government’s intention to boost affordable housing. All in all, this budget was exceedingly cautious and not enough to infuse any significant doses of vibrancy into the real estate sector,” says Jain.

Vipul Shah, Managing Director, Parinee Group is nevertheless optimistic from a lager macro-economic point of view. He 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.

“This 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. 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,” says Shah.

From a long-term investment perspective a section of analysts are welcoming the Budget. Devina Ghildial, Managing Director, RICS South Asia says the government’s strong commitment to investment in public infrastructure should definitely be lauded. The impetus provided is critical for improved productivity to boost long-term economic growth and has been demonstrated with stepped up allocation for infrastructure development, rural infrastructure and affordable housing.

“While the budget may not have lived up to the expectations of the sector, developers do have some reason to cheer. With Dividend Tax on REITs being scrapped, investments will become attractive and fund raising easier. Also, the proposed 100% deduction to undertakings for construction of affordable housing will provide a much needed ‘shot in the arm’ for the residential sector,” says Ghildial.

The Budget might be having a few positive points from the long-term investment perspective. The increase in HRA deduction, removal of DDT from REIT and boost to affordable housing by allowing 100 per cent of deduction on profits made by entities constructing them have been addressed. But these will have long-term impact and does not touch upon the immediate concerns of the sector.

It hence fails to address the immediate concerns of the sector that is struggling against the liquidity crunch due to slow sales. The built environment of real estate sector in its collective consciousness is into cost & benefit analysis and the overtly critical voices have not been heard yet. That does not dilute the fact that the budget is disappointing for both the developers as well as the homebuyers.

The Budget has not factored in the need to strengthen the supply side of housing. As far as demand side is concerned, in all probability the fence sitter buyers 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.

Key Pointers

  • Service tax hike to burden homebuyers
  • Nothing encouraging for middle class homebuyers
  • Personal Income Tax exemption slab not changed
  • No encouragement for women homebuyers
  • No employment generation and no scope of earning disposable income for urban middle class
  • Rs. 50,000 rebate on housing up to Rs. 50 lakh nominal relief in top 8 cities
  • No provision to lower input cost of developers
  • Capital Gains Tax can be diverted into stocks
  • Additional surcharge of 15% over income of Rs. 1 crore dampener for luxury housing

  By: Ravi Sinha

Union Budget 2016-17 confused about housing needs

Posted on by Track2Realty
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After much expectation the Union Budget 2016-17 neither addresses the concerns of the sector nor the homebuyers.

Union Budget, Money, Rupees, Budget for home, track2Realty, India real estate news, Indian property market, Union Budget for real estate sector, Track2RealtyThe 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 developers’ 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 sector’s major expectations – 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 – have been addressed, the Budget offered no financial protection from project delays to homebuyers.

“Most 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,” 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.

“This 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,” 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

CBRE declares Union Budget 2016-17 high on expectations

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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.

Realty budget wish list cuts no ice with homebuyers

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Homebuyers are not impressed with developers’ budget wish list that ignores the buyers’ concerns.

Union Budget, India real estate news, Indian realty news, Property new, Home, Policy Advocacy, Activism, Mall, Retail, Office space, SEZ, IT/ITeS, Residential, Commercial, Hospitality, Project, Location, Regulation, FDI, Taxation, Investment, Banking, Property Management, Ravi Sinha, Track2Media, Track2Realty“I am reading these newspaper reports about the real estate sector demanding so many things with the Union Budget. Most of these demands are for their financial health than understanding the market from common homebuyers’ perspective like us. Do we matter at all in this eco system where neither the government nor the developers understand what keeps us away from the property market,” says Shweta Sanyal, an advertising professional in Mumbai.

It seems most of the demands of the Indian real estate on the eve of Union Budget every year are so self-centered that it fails to impress either the Finance Minister or the homebuyers. Even though there are customary voices to cut down the interest rates and increase the income tax rebate slab, yet the major focus has always been on the financial package for the sector, infrastructure status and industry status for them.

Rikki Sahni, a tax consultant points out, “There is no denying that the infrastructure status and priority lending for housing projects will do a world of good for the financial health of the sector. Similarly, the industry status might prove to be handy as far as ease of doing business is concerned. But will these benefits pass on to the end users? I have my doubts.”

In the absence of earning the trust of the end users as far as the demands are concerned, the sector has failed to get the homebuyers on board. The focus is so much on demanding the financial package for the sector that even if there are a few rational suggestions, it is seen as another means to extract for the sector.

For example, the industry body NAREDCO has suggested that the government land, wherever available, should be used as equity and government agencies encouraged to assemble additional land as much as possible.

India is short of 18.78 million housing units and 96 per cent of it is in EWS and LIG categories. Government is targeting to build 2 crore housing units by 2022. All this will be possible if land and bank financing is made easy.

However, along with this suggestion what is more important for the industry body is its demand for the industry status. Anuj Puri, Chairman & Country Head of JLL India seems to understand this when he says the Union Budget should pay specific heed to this pressing need to offer financial protection from project delays to home buyers. According to him, on purchase into an under-construction property, buyers can only claim tax benefits of Rs. 2 lakh after possession if construction is completed within three years. The benefits reduce to Rs. 30,000 if the builder delays construction beyond this – and they pay higher interest. First-time homebuyers purchasing properties for self-use additionally pay rent.

“Instead of allowing homebuyers tax benefits post-possession, the Union Budget should make a provision that allows these from the time they start paying interest on housing loans. This will ease their monetary burden considerably and make increase the velocity of home loan disbursements,” says Puri.

There are some other suggestions which could have gone down well in the collective consciousness of homebuyers. For example, if an under-construction property is purchased from capital gains, its construction must be completed within three years of its sale to avail exemption. There can be delays by developer in such cases too. These deductions should be brought at par and the construction timeline should be extended from the current three years to five years. 

Pro-consumer suggestions that could have helped to revive the sector would have also found a chord with the homebuyers. More importantly, when the builder and buyer is on the same page with the budget wish list then it could not have ben be ignored by the Finance Minister as well. However, there has been so much focus on the repeated demands for the sector that the larger picture was missed in the process.

By: Ravi Sinha

Track2Realty Exclusive

Poised for growth; potential to be most attractive and transparent market

Posted on by Track2Realty

By: Sachin Sandhir, Global Managing Director, Emerging Business, RICS

india realty news, india real estate news, real estate news india, realty news india, india property news, property news india, india news, property news, real estate news, India Property, Delhi NCR real estate, Mumbai Real Estate, Bangalore Real Estate, Pune Real Estate news, Union BudgetTrack2Realty Exclusive: The time of transition for the Indian real estate and construction sector has finally arrived. Since last few years, a number of regulations pertaining to the real estate market were put on hold. A number of them are now at the draft stage waiting for Parliament’s approvals.

Famous among these is the much awaited real estate regulation for the Indian market. The draft Real Estate (Regulation and Development) Bill 2013 was debated and then sent for Parliament’s approval.

While the draft bill waited for its turn, government changed. The new government brought various measures that have been progressive and forward looking. The announcements such as allowing Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InVits) and plans to build 100 smart cities has made the Indian market a sought after investment destination.

The government also eased overseas investment rules in construction to attract money into the funds-starved sector and serve its twin objectives of faster job creation and housing for all. The government recently held consultations over the draft real estate regulation and establishing single window clearance mechanism.

The government recently approved a comprehensive proposal by the Department of Industrial Policy & Promotion (DIPP), dropping the minimum 10-hectare rule for serviced housing plots and slashing the minimum floor area for construction development projects to 20,000 sq m from 50,000 sq m to be eligible for overseas investment.

It also halved the minimum foreign direct investment (FDI) amount to $5 million from $10 million. With exit norms simplified, the relaxation in norms will encourage more investors to consider investing in India.

Poised for growth, the amount of investments within these sectors has seen an increase in the past six months. Investors from around the world are looking at India as an investment destination that promises healthy return in the longer run. So what lesson do we get from this?

The answer lies in comparing the current scenario from the times when the country was unable to implement the drafted policies on ground for some meaningful change. The recent announcements have not only increased the quality of investments in the Indian real estate but have also increased the share of investments from foreign funds.

To simply put it, the Indian market has become slightly more transparent and lucrative for the world after a sense of stability and simplifying norms of doing business in India.

And this has been achieved despite not having a real estate regulator! Imagine a situation when we will have a real estate regulator and an Appellate Tribunal, as envisaged in the draft Bill; the market will probably be one of most transparent and easy markets to operate in the entire world. The opening of REITs and InVits is just a precursor to that stage.

As the work towards simplifying norms and rules continues, we can expect more and more facilitation from the government and lawmakers.

What needs to be done?

According to a recent economic commentary on India by RICS, the Indian economic expansion is set to regain pace through fiscal year 2014-15. Over the past decade, India has managed to achieve an average annual GDP growth rate of 7.7 per cent and is now the world’s 10th largest economy. The task now facing policy makers is to put India back on the path towards achieving full growth potential.

The first thing that needs to be done is to bring inflation down. This would help revive the domestic market sentiment and will result in more spending. Second, introduction of tax reforms initiative, the Goods and Services Tax regime will pave the way for further growth.

Third, the demand for consistency when conducting asset valuations has become a priority for one of the world’s most influential economic forums. Valuations are central to decision-making within the global economy, applying both to capital and property market decisions and to decisions and actions in public and private sector organisations, including regulatory organisations.

Thus, adoption of International Valuation Standards (IVS) is imperative. And India needs to adapt to these guidelines when it comes to valuations. Red Book of RICS on Valuations is aligned to the global valuation standards or the IVS.

In addition to this, a Coalition, the International Property Measurement Standards Coalition (IPMSC) is already working towards bringing uniform measurement standards for commercial, residential and industrial properties. If these guidelines are implemented in India and policies are framed as per the guidelines framed by the IPMSC India will be one of the most transparent markets in the world.

Fourth, to generate further growth and make the market more proficient, it is imperative that the sector has enough trained professionals to carry out the task during the period of transition. According to RICS Research Report ‘Real Estate and Construction Professionals in India by 2020, India has nearly 50 million people working in built environment, of which only 2 million are professionally qualified, while the remaining are primarily construction workers.

To deliver all the potentially required real estate space and planned infrastructure, the built environment will have the requirement of 5 million skilled candidates every year till 2020. Therefore, going forward we would need a robust educational set up to train our youth for the variety of jobs that the real estate and construction sectors offer.

Fifth, urban planning in India is often seen to be out of sync with all other kinds of planning at the city/town level. With the effective usage of Information and Communication Technology (ICT) and lean construction methodologies the pace of construction can be enhanced. Thankfully, as bigger Indian cities are linking their urban planning with the needs of a changing population, we need to follow the same example in smaller tier II and III cities.

To start with, planning on the lines of smart cities can be replicated to all the new developments. Moreover, it is important to understand the needs of employment, usage of environmental resources in the region and energy in a particular city before the planning.

Long way to go with long budget wish list

Posted on by Track2Realty

By: Ravi Sinha

Union Budget, India real estate news, Indian realty news, Property new, Home, Policy Advocacy, Activism, Mall, Retail, Office space, SEZ, IT/ITeS, Residential, Commercial, Hospitality, Project, Location, Regulation, FDI, Taxation, Investment, Banking, Property Management, Ravi Sinha, Track2Media, Track2RealtyTrack2Realty Exclusive: On the eve of Union Budget every year the Indian real estate sector seems to be fighting a losing battle with the government. For long the policy advocacy of the sector has amounted to confrontation with the policy makers where the sector proposes and the Finance Minister disposes.

Some of the demands sound to be so overtly rhetoric that it seems the sector has lived in a copy & paste mode in the last few years and only thing that constantly changes with the list of budget demands is the date line year after the year. However, on the eve of the Union Budget 2015-16 it seem there is a visible change in the perception of the developers and the government.

Both the policy makers and the developers seem to be gradually coming on the same page as far as the legitimate causes and concerns of the sector are concerned. They understand the constrains of the other side as well and hence the Union Budget this time around might see the new beginning for the sector. The developers are in the meantime not overtly critical and though they have a long budget wish list this time too, they are also conscious of the fact that they have to go a long way with the government and hence there is a need to bridge the trust deficit.

This realisation is both ways and promises to see some gains for the sector in the Union Budget 2015-16. The Union Budget for 2015-16 will be Finance Minister Arun Jaitley’s maiden Full Year Budget of the new  BJP-led government. The industry observers maintain since the government came to power on promises of providing relief to inflation-hit common man, amid falling growth, stagnating investments, high fiscal deficit and external crisis, there are reasons to believe the government will fuel the wheel of growth where real estate is an important segment.

Manoj Paliwal, CFO, Omkar Realtors & Developers is expecting the budget to be rational which will remove the anomalies of the tax system that are beyond normal businesses. On the other hand, he is also advising the government to recognize that India is a growing economy and does not need to follow the high tax regime practised by other global economies. He asserts that the current government seems to be serious about growth. Any positive changes in tax laws need to be duly supported by other regulators.

“One can expect a whole set of second generation reforms to be unveiled in the next Union Budget. A need for stability of policy and tax regime besides a reasonable cost of capital is a must. We have to understand one thing that the change is not going to come overnight. The work towards making the buyer sentiment positive has started and we shall see that happen for sure. Today, customer is king and has increased choices. In spite of huge regulatory hurdles the sector is becoming more competitive. Developers need to work and plan as per prevailing business scenarios, says Paliwal.

Abhay Kumar, CMD of Grih Pravesh Buildteck says budget expectations are many – interest rate has to reduce, employment has to increase, implementation of 7th pay commission is much needed, good  and multiple connectivity of cities is required, single window clearance system has to be granted for businesses, corruption must be curbed, GST has to be implemented and stalled large infra projects have to restart.

“This budget is certainly going to be different because government coffers too are at impressive level which could support lots of social and infra projects. Fiscal deficit and inflation is in control which would further help government in budgeting such sectors which was ignored for quite some time. In a nutshell, this budget could be closer to reality than making just aspirational announcements,” says Abhay.

Arvind Nandan, Executive Director of Housing.com sums up the budget sentiments of the sector vis-à-vis their expectations when he says that the sector is patient with the government with confidence that the intent and direction of the government is pro-sector. He believes the turnaround of the fortunes of the sector will be visible post the Union Budget as this will be the first ‘Full Budget’ of the Government; something that shows forward a clearly defined roadmap.

“The good part is that the government is conscious of the needs of the real estate sector and its co-relation with the revival of the economy at large. So, I get this feeling that the budget which otherwise is more of a vision statement of the government will have something more this time in terms of the specifics and defining of the roadmap ahead. Of course, the focus on infrastructure development itself will solve many problems” says Nandan.

This raises a fundamental question as to whether the sector thus far had unrealistic expectations with the budget. Developers deny this saying it never had any unrealistic expectations but there is less demand today because of the emerging understanding between the sector and the policy makers. A general expectation from this sector has always been for ‘Good Governance’. Real estate is one of the few sectors which are still under old ‘License Raj’. Many sectors like Banking & Financial Services, Telecom and Manufacturing have relatively good government support and are witness to the growth due to good governance. After a radical improvement in regulatory environment, real estate sector will attract huge amount of capital and resources, which will bring down the cost and making living affordable to all.

Analysts point out that even though some sops are very much expected with the budget ahead, just budget can not turnaround the situation; now the time has come to convert words into action. Touching emotional chord and creating hype would not be sufficient any more for keeping the business confidence index high. Budget should follow the implementation quickly to see the real change in otherwise dim situation. Sudden turnaround does not look feasible but there would be some real & firm growth in different sectors and development at macro-economic level. This could be a dream budget where the government can fulfill those dreams due to its strength and desire to do so.

The realty sector is seeing reality after a very long dream run. People now understand that 40-50% CAGR is no more possible in real estate sector. This government came into power with sky high expectations of people and situation was such that the sudden change of sentiments led to Sensex touching fifty thousand in one year. But then expectations also led to hope that Mumbai would become Sanghai in two years, India becoming power surplus country in five years and so on. Now even people are hit with harsh realities that things do not change overnight and it takes time to see the gradual improvement.

Currently people are recovering from aftershocks from their own expectation created by the over hype in the General Election. And hence, coming out of that election hang over this budget will be a litmus test for government to show some real changes at macro level. To regain the confidence in real estate the government must win the confidence of home buyers first and for that low interest rate, low inflation and encouraging buyers through tax incentives are much needed. Moreover, additional land parcels should be made available to curb the ever rising land cost thereby making affordable housing and housing for all a reality. Union Budget 2015-16 is hence expected to answer long list of queries, even though there is patience on part of the sector with an overt ‘long way to go’ posturing.  

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