CBRE declares Union Budget 2016-17 high on expectations

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.

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