Bottom Line: Come budget and all discussions and debates around the real estate sector is about the housing market, the developers’ wants & needs and the home buyers. It gives the impression that the Union Budget has absolutely no connect with the state of commercial real estate.
The Interim Budget of Narendra Modi Government is no different from previous budgets of India, as far as industry overtones and expectations are concerned. Most of the industry demands and buyers’ representations have also been from the standpoint of housing market only.
Is there any hope for the commercial real estate with the Interim Budget? To understand this one has to first understand the ground reality that commercial real estate is just about one-fourth of the residential market.
So, it is the insignificance of commercial real estate in terms of size & market share that does not warrant any serious reckoning with the budget. Right? Well, only those who do not understand the economic cycle and demand cycle of real estate would endorse this view.
The fact of the matter is that it is the demand of office space that indicates the future road map of real estate business. Demand of office space is a result of a booming economy leading to more jobs that leads to more demand of housing and together the two demands lead to consumption demand being reflected in the growth of retail real estate.
Today, the government data and claims about employment have been contested by the independent analysts monitoring employment & economy. The fact nevertheless remains that the decelerating housing market and slower retail consumption clearly indicate that the sentiments are not what brought this government to office in 2014. Independent employment monitoring agencies claim there has been fall in employment across 27 sectors.
Does the Interim Budget 2019 promises any job revival? Unfortunately not! Despite tall claims of the outgoing government the fact of the matter is that Narendra Modi Government has failed in its much touted promise of job creation. With most of the industries showing negative job growth, the Interim Budget doesn’t give hope of any turnaround with policies and programmes.
Let’s look at budget announcements that could have a direct bearing on commercial real estate:
Job creation—chances of being seen as political narrative
Relaxed retail FDI—A move that is unlikely before elections
SME incentives—Could lead to demand of more office spaces
The industry stakeholders nevertheless have their own assessment. Dhaval Shah, Joint Managing Director, Parinee Group, believes that for the last couple of years, the commercial segment of the industry is witnessing a boom. There has been a lot of office spaces and commercial buildings coming up in locations like Andheri West, BKC, Worli etc in Mumbai.
“One of the key reason is the foray of the foreign brands, the advent of the start-up culture and the increasing trend of shared office spaces or co-working spaces. Earlier the offices used to be of large floor plates, but the recent trend is of small spaces starting from 600 sq. ft. onwards with dynamic amenities and features, best suited in this digital era. Nowadays it is no more just a working space but a combination of leisure, entertainment, and wellness. The creation of jobs is another reason for the increased demand for commercial spaces,” says Shah.
Aditya Kedia, Managing Director, Transcon Developers says that as per research Indian economy is slated to reach a $5 Trillion economy by the year 2025. The commercial segment of Indian real estate space witnessed an upsurge with the positive Return-on-Investment (ROI) on commercial segment with the constant demand coming from commercial properties in the right location.
“With the burgeoning job opportunities in Tier I cities like Mumbai, Pune, Bengaluru, Hyderabad, Delhi & NCR, realty developers are constructing projects that are attracting the corporate tenants, which yields good rental returns over prolonged periods. Interestingly, the demand is extending to Tier II & Tier III cities. The increasing avenues of employment prospects have further created a demand for co-working and serviced office spaces which have already perceived a new scale of growth and is set to see a significant spike over the next few years,” says Kedia.
Nikhil Hawelia, Managing Director of Hawelia Group sounds more realistic when he says that other than announcement of some policies for retail sector the Interim Budget does not have scope to offer something substantial to commercial real estate. According to him, budgets in India have always been mostly about the housing market and commercial realty have only been benefitted or hurt by certain broader policies affecting the segment.
“Budget, after all, is only the vision document and devil lies in the detailing. For example, even if the government announces certain policy guidelines for the retail or job creation, the actual implementation is subject to overall draft & guidelines that follows the budget announcement. In contrast, any announcement for tax benefits to home buyers or tax cut on building inputs has a direct bearing on the housing market,” explains Hawelia.
Ina nutshell, there are limited options for the outgoing government to announce anything drastic that could have a direct bearing on the commercial real estate. Employment schemes would not lift the sentiments as it would be seen as a political narrative before the polls. Incentive to SMEs could be a possibility. Relaxed FDI norms for the retail could be another major announcement. But the question is whether the government would gamble this move just before the elections.