Bottom Line: It is ironical that even though the Union Budget 2018-19 is by and large seen as populist budget, in real estate it could neither be termed as pro builder budget or pro buyer budget.
It seems the Union Finance Minister Arun Jaitley has failed to address the struggling and ailing real estate sector from the standpoint of both the homebuyers as well as the developers. However, what is all the more interesting is the fact that the developers are not overtly complaining. It is only the homebuyers who are sulking while the developers are trying best to put up a brave face.
The fact of the matter is that the Union Budget 2018-19 has denied anything substantial to either the developer or the homebuyers.
Let’s first see the legitimate demands of the real estate sector that could have helped both the builders and the buyers. These demands were completely ignored in the budget, even though it is otherwise a populist budget. The developers had been asking for industry status which could have recognized the sector as a priority sector. With priority sector the lending would have been possible at a lower interest rates. This could have brought down the cost of construction, thus lowering the property prices for the buyers.
What could have also helped the cause of both the buyers and the builders is higher deductions allowed for land cost, in place of the existing deduction of 33%. This could have lowered the GST liability of the buyers while giving some respite to builders who are anyway spending up to 70% as land cost in cities like Mumbai, Bangalore or Gurgaon.
Moreover, had the budget made provisions to club the GST and Stamp Duty in an under-construction property, it would have brought smiles on the faces of both the builders and the buyers.
Populist budget for whom
Union Budget 2018-19 is termed as populist but it is neither populist for builders nor for homebuyers
The core issues that could have revitalized the sector and brought buyers back to market completely ignored
In the name of thrust upon affordable housing only rural housing is addressed while urban affordable housing remains ignored
Middle class in major cities neither incentivized in home buying nor a rental housing policy mooted for them
Kishore Bhatija, Managing Director, Real Estate Development, K Raheja Corp admits that the year 2018 sees a populist budget presentation by Finance Minister Arun Jaitley catering to the needs of the common man and the economy. The budget has provided financial allocations in maintaining the government’s larger vision of ‘Building the Nation’ and ‘Housing for All’.
“The budget’s capital expenditure focussing on key sectors such as agriculture, infrastructure and housing amalgamate to provide necessary momentum and thrust to the economy. Changes in corporate taxation will incentivize many to invest, and be competitive. Overall the budget creates an environment for inclusive growth, and infuses transparency into the system. The real estate industry was seeking some very important amendments like the industry status, streamlining of taxation norms for REITs, rationalization of GST, and extension of tax SOPs for SEZ units, which we hope will be addressed soon,” says Bhatija.
Amarjit Bakshi, Managing Director, Central Park agrees that after laying the foundation for a more robust and organized real estate sector, one anticipated the government to further reinvigorate the industry by way of lowering the GST rates, allowing single window clearance and affording an industry status to the real estate sector. These changes would have contributed positively to hasten the recovery of the industry which is today one of the largest employer and contributor to country’s GDP.
“The government’s continued focus on affordable housing with an establishment of a dedicated fund will further propel the realization of Pradhan Mantri Awas Yojana (PMAY) which aims to bring more people under the ambit of inclusion. Greater focus on developing the infrastructure layout by way of increased budget allocation for highways, acceleration of rural roads construction is a welcome move as it will drive greater socio-economic development around these regions,” says Bakshi.
JC Sharma, VC & MD of Sobha Limited nevertheless defends the Union Budget. According to him, the government’s proposal to create a dedicated affordable housing fund in the National Housing Bank (NHB) through various funding measure will give the right impetus to the segment. This is in addition to benefits such as reduced GST rate of 8% for the segment and revised consideration of carpet area of 30 and 60 sq. metres instead of built-up area of 30 and 60 sq. metres announced last year.
“These measures clearly indicate government’s focus on boosting the housing sector and meeting the requirements of the middle class. Additionally, to minimize the hardship in real estate transaction, the Finance Minister’s proposal to provide that no adjustment shall be made in a case where the circle rate value does not exceed 5% of the consideration is a welcome step,” says Sharma.
In a nutshell, beyond the congratulatory overtones of a section of developers the populist budget ahead of next General Elections could not found favour in the major cities of India. It remains debatable as to how many of these builders would foray into rural affordable housing to make the best of government’s incentive over there. The homebuyers are disappointed either, as the budget could neither address concerns of home buying nor could moot any proposal of rental housing in these cities.
By: Ravi Sinha