Realty not complaining as budget touches pain points

The Union Budget 2016-17 only touches upon some pain points without addressing larger concerns; yet sector not complaining.

Union Budget, Union Budget 2016-17, Finance Minister, Fiscal Policy, Fiscal Deficit, Monetary Policy, Budget disappoints real estate, Incentive for home buying, NRI investment, Track2Realty, India real estate news, Indian property marketThe Union Budget for the last few years was a matter of hurt burn for the real estate sector. The post budget reactions always gave the impression as though the policy advocacy had gone unheard by the respective Finance Ministers. After all, the major demands of the sector vis-à-vis industry status, single window clearance and easy finance availability were never addressed.

The Union Budget 2016-17 has yet again not addressed any of these concerns and yet surprisingly no one is complaining this time around. This probably heralds a new beginning of policy advocacy where the power corridors and the developers seem to have started understanding what is feasible and what is not.

More importantly, probably the line that bifurcated between the wants and needs are also getting blurred.  At least the responses of the leading players indicate this.

JC Sharma, VC & MD, Sobha Limited admits that in the given economic environment, this Budget is overall balanced and is growth oriented with immense capacity to unlock the initiatives taken by this government. As far as the housing sector is concerned, it has come out to be the primary beneficiary. While cars, luxury items, jewellery, travelling, dining, tobacco have all become costlier housing sector has gained the much needed attention.

“The 100% deduction for profits to an undertaking in housing project for flats up to 30 sq. metres in 4 metros and 60 sq. metres in other cities approved during June 2016 to March 2019 and completed in 3 years will encourage supply in the affordable housing segment. This is subject to Minimum Alternate Tax. The proposal that distribution made out of income of SPV to the REIT and Infrastructure Investment Trusts (INVITs) is likely to promote REIT and attract new investments,” says Sharma.

Sachin Sandhir, Global Managing Director – Emerging Business, RICS says the Finance Minister has managed to give the real estate, construction & infrastructure industry a much needed boost by combination of investment measures, easing of bottlenecks and incentives to encourage growth – specifically for the much needed areas of affordable housing and REITs.  It is a forward looking budget with tremendous focus on leveraging technology to implement big ticket reforms – be it an e-portal for farmers, digital repository for education or tax accountability measures.

“Dispute resolution mechanism for construction contracts along with credit rating system will be highly beneficial for this important but dispute ridden sector. Removal of DDT on REITs will encourage REIT listings, which itself can be a game changer for the Indian real estate market. The budget has also given the affordable housing market its due importance and announced series of measures in line with the housing for all scheme,” says Sandhir.

Kedar Joshi, CMO, Ahuja Constructions nevertheless maintains that the real estate industry had been holding a lot of hopes from Union Budget 2016. The budget brings in mixed bag of reactions to the real estate industry which has been hit by slowdown and has been definitely looking for a turnaround. First time homebuyers definitely have a sign to cheer.  The budget has provided an exemption of Rs. 50,000 for housing loans up to Rs. 35 lakh, but at the same time it has to be ensured that the cost of house is not above Rs. 50 lakh.

“The housing loan interest for the first time homebuyers and affordable housing would boost the stressed residential sector. The budget brings in a boost to low cost housing and this could bring in the demand for compact homes. The move of removal of service tax on houses which are less than 60 sq meters will see a sigh of relief to the middle class & lower middle class homebuyers. A nod to dividend distribution tax on REITs will bring in stability and would combat few bottlenecks. We welcome Budget 2016 that will make housing for all a reality,” says Joshi.

Rattan Hawelia, Chairman of Hawelia Group calls it a mix budget where the empty side of glass is larger than the filled side. He accepts that the increase in limit of exemption of home loan interest for first time homebuyers is surely a positive move for affordable housing. This will boost the residential sector in many cities. But that is not enough to fuel the housing demand or revive the Indian economy in general and housing market in particular. Scrapping of dividend distribution tax on REITs would certainly benefit the already stressed real estate sector

“Certain concerns and long pending demands are still not addressed. The incentives might prove to be symbolic in nature than substantive change on ground. The reason is that neither the developers have been incentivized with low input cost nor the demand of housing has been catalysed with more job creation and disposable income. Unless that happens, even the low ticket houses will not sale due to affordability concerns,” says Hawelia.

David Walker, Managing Director, SARE Homes also calls Union Budget 2016-17 a mixed bag for the real estate sector. He expressed pleasure to see that the government has stuck to the 3.5 per cent fiscal target as this will give head room for the reduction in interest rates which will benefit all sectors of the economy and particularly the housing sector. The Finance Minister’s proposal that any distribution out of SPV income to REITs and INVITs with specified shareholding not being subject to Dividend Distribution Tax (DDT) will spur investments in REITs.

“The additional exemption of Rs 50,000 for housing loans up to Rs 35 lakh – provided the house cost does not exceed Rs 50 lakh – is welcome too.  Excise duty exemption on ready-mix concrete used in construction sites augurs well for the construction industry. While plans to meet the fiscal deficit targets are a good move, some of the key issues in the real estate sector have been given a skip. The real estate sector’s expectations of being accorded Industry and Infrastructure status have not been accepted. Furthermore, the fact that there was no mention about action being taken to expedite GST and the Real Estate Development Bill is disappointing,” says Walker.

So, the Union Budget has proved to be a mix bag for the sector. However, there are less voices of dissent, compared to the last few years. And the reason is better understanding between the policy makers and the real estate developers. There is no question by the sector on the intent of the Finance Minister even though they disagree with some of the budgetary allocations, or the lack of it.

Major Hits

  • Deduction for additional interests of Rs. 50,000 per annum for loans up to Rs. 35 lakhs
  • Exemption from service tax on construction of affordable houses up to 60 sq. metres under any scheme of the Central or State Government including PPP Schemes
  • Exemption for rent paid goes up from Rs. 24,000 to Rs. 60,000
  • Proposal to digitize land records is in the right direction
  • Dividend Tax on REITs being scrapped
  • Proposed 100% deduction to undertakings for construction of affordable housing
  • Budget has increased the time line for construction from three years to five years in Section 24, for claiming deduction

Glaring Misses

  • Service Tax hike to burden homebuyers
  • Nothing encouraging for middle class homebuyers
  • Personal Income Tax exemption slab not changed
  • No encouragement for women homebuyers
  • No employment generation and no scope of earning disposable income for urban middle class
  • Rs. 50,000 rebate on housing up to Rs. 50 lakh nominal relief in top 8 cities
  • No provision to lower input cost of developers
  • Additional surcharge of 15% over income of Rs. 1 crore dampener for luxury housing
  • No mention of Industry status or Infrastructure status of affordable housing
  • No mention of Real Estate Regulator 

By: Ravi Sinha

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