Nothing for real estate to get excited about from Budget 2011: Anuj Puri, Jones Lang LaSalle India

It would seem that the Union Budget 2011 pointedly ignored the larger issues affecting the Indian real estate sector at this sensitive stage of revival and growth.

My observations:

DIRECT IMPLICATIONS

• SEZs have been brought under the purview of MAT, which basically diminishes the benefits that SEZs offer for developers over other commercial real estate asset classes
• Raising the priority home loan limit from Rs. 20-25 lakh is good news for the LIG segment, but will do nothing to ease the pain in the metropolitan cities where real estate prices and therefore demand for affordable housing is highest. Companies such as Unitech and Ansals, which are rolling out budget housing, will be benefited by increase of volumes
• The 1% interest subvention for home loans upto Rs. 15 lakh from the previous limit of Rs. 10 lakh will come as a relief to home loan borrowers from the LIG segment

INDIRECT IMPACTS AND IMPLICATIONS

• Enhancing personal tax exemption limit from Rs. 160,000-180,000 is insignificant and insufficient to make a difference in real estate market terms
• Allowing FDI in mutual funds would have been a blessing if the Government had been more proactive in allowing REMFs
• Stricter measures against black money can potentially help bring about greater transparency and make the real estate sector more attractive for foreign investors. One awaits the detailed outlining and real-time implementation of these measures
• The budget made no mention of FDI in retail, which is great disappointment since the retail sector seriously requires the benefit of foreign investments into multi-brand retailing
• The budget remained silent on the pressing issue of extension of the STPI exemptions as well  and Sec 80IA and 80IB, which are pertinent to the construction of residential projects of units sizes below 1200 sq. ft. This is a de-motivating factor which will further curtail the supply of affordable housing
• Raising the corpus of the Rural Infrastructure Development Fund from Rs 16000 crore to Rs. 18000 crore would logically translate into the opening up the real estate potential of hinterland locations. However, similar provisions in the previous budget had no discernible effect. Much depends on how seriously actual implementation is taken
• The budget’s stated intention to create 150 lakh metric tons of food storage capacity can potentially catalyse the formation of more retail warehousing. This would potentially encourage the construction of more modern warehousing facilities, and benefit the retail supply chain by reducing the cost of business operations via increased shelf life of perishable products, reduced wastage and increased margins.