Realty evokes mixed response to budget; by and large optimistic

Track2Realty Exclusive: The Indian real sector has evoked mixed response to the Union Budget 2013-14, though by and large there is optimism within the sector. Here are some of the responses—

Anshuman Magazine – CMD of CBRE South Asia Pvt Ltd.

Overall the budget was not as bold as was expected. The Finance Minister mentioned all the important things required to stimulate our economy such as economic growth, rationalize expenditure, reduce fiscal deficit, encourage FDI and so on. However the budget did not announce adequate measures to achieve these goals.  The following were positive for the real estate industry:

• Allocation of INR 15,184 crores under Indira Awas Yojana (the housing programme for the rural poor), INR 6,000 crores to Rural Housing Fund and INR 2,000 crores to Urban Housing Fund
• Tax deduction of upto INR 1 lakh for first time property buyers taking up a home loan of up to Rs 25 lakh, compared to INR 10 lakh previously
• Allocation of INR 14,873 crores for projects under JNNURM, compared to INR 7,880 crores in the previous budget
• Promotion of infrastructure finance with infrastructure debt funds (IDF’s) encouraged
• Willingness to provide additional funds to Delhi Mumbai Industrial Corridor to develop 7 new cities
• Expected increase of finance to industrial corridors particularly towards developing the Chennai-Bangalore industrial corridor and the Mumbai-Bangalore industrial corridor.
• Allocation of INR 5000 crores to NABARD to develop warehouses, cold storage facities, godowns etc
• Increased limit of tax free bonds for financing of infrastructure projects to INR 50,000 crores

However the limit of abatement of service tax for housing over INR 1 crore has been reduced by 5% which was not necessary besides the following were not considered:

• Infrastructure status to the integrated township developments
• Exemption of MAT for SEZ’s
• Tax exemption for small houses of under 60 sq mt and a low interest on housing loans for such houses
• More liberal ECB policy for affordable housing
• To increase the value of the loan from 15 lakhs to 25 lakhs for 1% interest subvention for home buyers

The real estate and infrastructure sector need long term capital at lower cost. This capital can be sourced through FDI, Debt/bonds, insurance companies, pension funds, long term saving instruments etc. and by encouraging private investment. I hope that measures proposed in the budget aimed at promoting infrastructure growth, reforms in the financial sector and industrial development will be implemented effectively, in order to propel India towards a high growth trajectory.

Anuj Puri, Chairman & Country Head, JLLI: We did not expect the Indian Union Budget 2013-14 to be a game-changer. The realities of the Indian economy need to be viewed in context with the factors that drive it, not least-of-all the global economic situation. There is no escaping the fact that the business which comes to India from the European Union and the USA has a trickle-down effect on key economic drivers of the country, and the Finance Minister does not have control over these factors. The Union Budget can only hope to address variables within its control.

This was a moderately encouraging Budget in general, but tepid for the Indian real estate sector.

• On the positive side, it provided a boost to affordable housing with an additional interest benefit of Rs. 1 lakh on first-time home loans up to Rs. 25 lakh. However, this provision is only for the first year and with a carry-forward benefit of the unutilized deduction to the second year. This will help boost housing sales in tier 2 and 3 cities, peripheral areas and distant metro suburbs, but not within the metropolitan cities, where housing is more targeted towards the mid and upper income segments.
• The setting up of the Urban Housing Fund by the NHB with an allocation of Rs. 2,000 crores will infuse liquidity for urban housing, thereby boosting demand.
• The Budget’s focus on education and job creation is doubtlessly commendable. Job creation is a primary driver for real estate in India. Education is now a well-defined real estate segment and will receive a boost over the medium to longer term.
• The additional allocation of Rs. 14,873 crores to JNNURM towards public road transport will help make lagging real estate locations more viable over the longer term.
• The TDS of 1% to be charged on the transfer of immovable property is an obvious move to curb speculation and bring about improved reporting and accountability in high-value immovable property transactions. Considering that the TDS is to be charged on the gross transaction value rather than net gains, sellers will have a cash-flow impact in situations where the sales are at a loss or at zero/negligible gains.
• The rate of abatement on homes and flats of above 2,000 square feet or costing Rs. 1 crore and above has been reduced from 75% to 70%. Effectively, this translates into an increase in service tax outflow, which means that luxury housing will now become even more expensive.

There has been no proposal on certain key expectations of the real estate sector. These include implementation of the Real Estate regulator and the Land Acquisition Act. All said and done, Indian real estate will continue to struggle with its larger hurdles. While the affordable housing category has been rightly given due attention, aspects relating to improved transparency and corporate governance within the sector have been largely ignored.

That said, the Budget has shown commitment to improving communication on taxation and regulatory policies. This should give more comfort to offshore real estate investors who have been bogged down by the political inertia and therefore unsure of India as an investment destination in the recent past.

Sunil Dahiya, Sr Vice President, NAREDCO: I welcome the additional tax deduction for home loans and expects it will boost the sentiment among the home buyers. I feel that the move will encourage the first time home buyers. Most of the first time home buyers fall into this given price range and are salaried class. So, it will help the middle level of housing market where the maximum demand is.

Sachin Sandhir, Managing Director, RICS-South Asia: RICS appreciates Finance Minister’s message for improving the ease of doing business in India; following international best practices for FII & FDI and also improving policy communication to remove distrust and fear among investors – all of which are critical if India wants to attract foreign investment. This message has significant implications for the real estate sector given the crying need for introducing standards and professionalism as well as reducing timelines & transaction costs for project approvals, in order to build confidence in international investors.

The budgetary announcements this year translate to a loud and clear message for real estate and construction sector. As in the past few years, the government has recognized the importance of funding infrastructure through sufficient government allocation to schemes and encouraging foreign investment. This is indicated in the bold step of doubling the outlay for JNNURM and Rs. 1 trillion target for infrastructure investment.

We are happy to note that FM has announced an Rs. 2000 crore urban housing fund, in line with our recommendation. FM has also not disappointed home buyers by increasing the home loan exemption limit and providing Rs 1 lakh interest benefit for loans up to Rs. 25 lakh, which will make homes more affordable. The other critical goal of creating better jobs opportunities for youth through emphasis on education spends indeed augurs well for this sector. Built environment sector – a significant and fast growing contributor to economy, also well-funded by government and investors, and does offer immense opportunities for the next generation.

Neeraj Bansal, Director, Risk Consulting, KPMG India: This budget will encourage affordable housing and boost construction. With current interest rates hovering around 10% for home loans, the entire year’s interest (at current rates) will be eligible for deduction within the extended limit of Rs.2.5 lakh. This is likely to bring a dual impact—impetus to the growth of affordable housing segment, and increase in employment opportunities in the construction sector.

Lalit Jain, National Preident, CREDAI: I express disappointment over the Finance Minister missing out on affordable and rental housing and banking reforms. I, however, praise Union Finance Minister P Chidambaram for accepting the suggestion for home loan interest incentives for sub-Rs 25 lakh buyers. But, honestly we were expecting a lot more.

I am happy that the first time home loan borrowers of properties of sub-Rs 25 lakhs will be allowed an additional deduction of Rs one lakh. I also welcomed the interest deduction of an additional Rs one lakh for home loan borrowers, taking the allowance to Rs 2.5 lakhs, for all self-owned properties.

However, the developer community is thoroughly disappointed that the Finance Minister has not given any directions to the RBI on the imperative to support real estate funding.

We have been suggesting to the government for long to help revive the real estate sector to rejuvenate the economy, but it is disappointing that that Finance Minister did not address the sector adequately.

CREDAI has been demanding the infrastructure status for real estate which Union Housing Minister Ajay Maken has supported. But the Union Budget did not make any mention of this.

CREDAI had called for tax exemptions for incomes on affordable housing with tenements of less than 60 mtr carpet area and incentives for rental housing, but the budget failed to address these key issues, Mr Jain said.

We have suggested a 20% reduction in FDI limit in real estate from the current 50,000 sq mtr and 25 acres that could help generate funds, but we are unhappy that the Finance Minister ignored this aspect. The sector would continue to face cash crunch.

The nation urgently needs to scale up the delivery of housing which can be achieved with the help of imported technology. We have been asking for tax reliefs for importing the technology.

We criticize the government for not withdrawing TDS on immovable property transactions. The Finance Minister seems to have gone for revenue generation through the high tax route and not by the growth-oriented economy which is highly disappointing.

Anshul Jain, CEO, DTZ India:

Infrastructure status to low cost housing

Expected: The government to award infrastructure status to low cost housing….This has been a long standing demand of the housing ministry, of the real estate sector. Developers would gain from it. The definition of low cost housing is a house having a size of upto 40 square meters.

Infrastructure status will help the real estate industry to get FDI, external commercial borrowings and domestic bank loans.

Tax exemption on housing loans

Expected: Interest repayment limit on home loan for tax benefits under section 80C to be enhanced to Rs 3 lakh. The said limit was continuing for the last 10 years.

Any relaxation will boost home sales while banks too can get more business on home loans.

FDI flows & ECBs

Expected: The Government should liberalize the FDI guidelines for inflow of foreign capital to real estate sector. Further, extend external commercial borrowings (ECBs) facility to be allowed to all real estate projects along with the lower tax withholding rate.

Stamp duty and registration

Expected: Introduction of uniform stamp duty rates and stamp duty credit will bring down costs for ultimate buyers. Higher registration fees affect buyers the most.

Tax holiday

Expected: Tax holiday available to affordable housing allows 100 per cent deduction of capital expenditure in the first year of business set up. Currently this deduction does not benefit developers, since business of developing housing project does not involve capital expenditure as the construction and land is stock in trade and not a capital asset.

Good news for home loan takers. People taking a home loan in 2013-14 for an amount up to Rs 25 lakh will be allowed an additional deduction of Rs 1 lakh.

Gagan Banga, CEO, Indiabulls: One has to compliment the Finance Minister P Chidambaram for addressing the nation’s priorities in his budget for 2013-14. He has presented a realistic and balanced Budget, which is a good beginning.

The various incentives and initiatives will kick-start investments which is a positive sign. While it has been a difficult year for the economy, both nationally and globally, yet the Finance Minister has been practical across the sectors. This gives room for hope.

Chidambaram has rightly recognised the importance of housing and infrastructure. The Finance Minister’s budget proposal to offer an additional interest deduction of Rs 1 lakh on housing loans of up to Rs 25 lakh for the first time home buyers will  not only help housing as such, but will also lead to an increase in demand for steel, glass, cement and several other industries.

I am happy that the Finance Minister has allowed carrying forward of the additional tax deduction to the next year by the first home loan borrowers, in case the limit is not utilised in the current year. The setting up of Rs 2,000 crore, “ urban housing fund and greater impetus to rural housing fund “ will go a long way in giving the much needed support to the housing industry as a whole.

All in all this budget will provide a big relief for affordable home seekers and will be a boon for the housing industry.

Sumit Bharana, Director, Era Landmarks: Finance Minister P Chidambaram presented the Union Budget 2013-14. In his speech he announced a lot of sector specific measures that will have far-reaching consequences on the companies operating within them. While some sectors have reasons to cheer, others may not find respite in the measures that have been initiated.

Here is to particularly look at the impact on the real estate sector. Among the proposed measures he announced interest deduction raised to Rs 2.5 lakh for loan upto 25 lakh. Additionally, a 25% increase in rural housing fund to Rs 6000 crore and the setting up of an urban fund of Rs 2000 crore to mitigate the acute housing shortage in the country.

This is a positive change for housing companies. The NHB (National Housing Bank) has been asked to do the needful. The finance minister has proposed to reduce the abatement in service tax from 75% to 70% for homes that cost Rs.1 crore or above, or are of 2,000 sq. ft or more in size.

I am of a strong opinion that interest deduction will boost demand for houses in tier II and Tier III cities, as cost of such apartments in these regions range usually between Rs 30-70 lakhs. More so, a higher housing fund allocation will boost demand and correspondingly increase home ownership. Major beneficiaries from this however will be the companies active in tier II and tier III towns, peripheral areas and distant suburbs of metros, but not within the metros, where housing is more targeted towards the mid and upper income segments.

This will encourage affordable housing and boost construction. With the prevalent interest rates soaring around 10% mark for home loans, the entire year’s interest (at current rates) will be eligible for deduction within the extended limit of Rs.2.5 lakh. This is likely to bring a dual impetus to the growth of affordable housing segment alongside a significant increase in employment opportunities in the construction sector.

The abatement however effectively calls for a substantial increase in service tax outflow, making the segment of luxury housing a more expensive affair. The segment of affordable homes with a huge demand supply gap in the housing sector on the contrary, will now witness a tremendous upsurge.