Mr Jaitely didn’t do an encore, as far as real estate industry is concerned. In the Union Budget 2015-16, the Finance Minister didn’t manifest the thrust to the sector as was witnessed in the last exercise. Whether it was granting industry status or relief in home loans or a host of other demands, the Budget didn’t attempt to meet any of these giving the impression to the industry of having been overlooked. It’s another matter that the RBI’s surprise rate-cut gift just three days later was able to lift their spirits, to some extent.
Having led it up the garden path by his maiden Budget last year, Finance Minister Arun Jaitley has left the real estate industry in the lurch, this time around. Though uniformly hailed as a Budget for growth and global competitiveness, the document presented by Jaitley to Parliament on February 28 this year has failed to cheer the realty sector, which has got virtually nothing, in terms of specifics. Its long wish-list having been overlooked, the real estate sector can see itself only as an ‘indirect beneficiary’, as some experts have put it.
In that context, the reduction of corporate tax rate from 30 per cent to 25 per cent announced in the Union Budget 2015-16 is expected to benefit the industry at large.The FM has also announced elimination of wealth tax and its replacement with a new Super Rich tax with an applicability limit of Rs 1 crore, significantly higher than the erstwhile f30 lakh.
Since a major share of personal assets in our country are in the form of real estate, particularly in the urban areas, the measure will effectively mean that a lot of urban housing stock will now be out ofthe purview of the new Super Rich. It could boost investments by the middle-class and some sections ofthe high-net worth individuals in the sector.
Besides, a whopping increase of Rs 70,000 crore in investment in infrastructure sector and deferment of the dreaded General Anti-Avoidance Rules (GAAR) by two years are by no means indirect positives for the real estate sector. The Budget announcement of linking 1 ,78,000 unconnected habitations with all weather roads means completing 2,00,000-km of road construction. The measure should provide good order book to companies like the NBCC with healthy balance sheets.
Though sparse, among the announcements having a direct bearing on the real estate industry, the clarity on taxation of rental income arising from REITs can be listed on top. The Finance Minister has announced that now the rental income arising from assets owned by the REIT will be allowed to pass through and be taxed in the hands of the REIT unit holders. This, according to Sachin Sandhir, Global Managing Director, Emerging Business and Managing Director, South Asia, RICS, “is expected to have a far-reaching implication in foreign investment flows, bank funds and could also provide opportunities for domestic investors to invest in debt returns from incomeyielding assets.”Jaitley has also said that he proposes to rationalise the capital gains regime for REITs, but has not given any specifics.
The Budget has also talked about the requirement of building two crore houses in the rural areas and four crore in urban areas as part of the vision of ‘Housing for All by 2022’, but is surprisingly silent on incentivising liquidity for the same. It also fails to provide any details on smart cities initiative announced with much fanfare in the last Budget. Factors like how the Government will define these cities and which cities have been identified still remain unclear.
Leaving aside these little giveaways and rather cursory references far and wide, the major thrust to the real estate sector, as witnessed in the 21 04 exercise, was missing in this year’s Budget presented by Jaitley. Not without reason, the industry, though appreciative of the long-term vision in Budget 2015-16, is rather sore on seeing its wish-list virtually dumped by the minister. Lack of any taxation incentives for home loans, no easing of funding sources and denial of industry or infrastructure status to a vital segment of the economy has distressed the sector most.
According to Anuj Puri, Chairman & Country Head, JLL India, “The Budget has not provided any additional relief via increased income tax deduction limit or on repayment of housing loans. The regime on these fronts which was announced during the previous Budget from eight months ago remains unchanged. This is a disappointment, since there was expectation that the Finance Minister would further increase either or both of these limits and thereby address the reality of high property prices in India.”
RICS, the international body for setting standards in real estate and construction, finds the Budget “a positive incremental Budget focused heavily on boosting infrastructure investment, though not necessarily a big bang one as envisaged.”
Sanjay Dutt, Executive MD, South Asia, Cushman & Wakefield, said, “The real estate sector is largely disappointedly with this year’s Budget as except for REITs and curbing of benami transactions, there was no specific mention alluding to the sector this time around unlike the last Budget presentation.” Further, he said, “The increase of nearly 2 per cent in service tax is going to increase the overall costs of buyers and those availing services from the real estate sector, creating further stresses across the sector.”
The Confederation of Real Estate Developers’ Associations of India (Credai) also feels that the sector has not got the desired position of importance in the Budget. C Shekar Reddy, National President, Credai, said, “The Budget is quite disappointing for the real estate sector as it has not given any impetus to the sector.” The sector, he said, provides much-needed employment “yet, the only provisions in the Budget for the real estate sector is the pass-through tax for investments in the Real Estate Investment Trusts (REIT’s) and rationalisation of the capital gains for the sponsors exiting at the time of listing of the units of REITs and lnviTs.” He was also unhappy that the industry demands for infrastructure status to the affordable housing and home loan interest rate subvention schemes have not been heeded to by the Finance Minister.
A cross-section of developers Realty & More spoke to for their comments on the Budget had similar views to express. Though the long-term vision of the Finance Minister came in for all-round appreciation, the lack of anything specificforthe sector was their main grudge.
RK Panpalia, MD, Wave lnfratech, said, “The Budget 2015 was balanced and has shown a roadmap for the infrastructure with an investment of Rs 70,000 crore which will certainly give a boost to ancillary industries such as real estate. “Infrastructure, he said, was a high focus area in the Budget, which will greatly impact the housing sector. However, he said, “There were no announcements to grant an industry status to the real estate sector, which would have enabled the sector to raise debt from financial institutions and foreign institutional investors (Fils) at a much lower rate thus partly relieving the liquidity crunch crisis and also passing on the lower costs to the end-users.”
Calling it a “very controlled Budget”, Manoj Gaur, MD, Gaursons India Ltd & President, Credai Western UP, said, “It appeared to be a cautious step by the Government to not make big announcements.” As of now, he said, “The real estate sector will not benefit at all from it and the demands of the sector are still unmet. What we fear is the probable increase in raw material cost which would not be good for the costing of housing.” Gaur said. “People are already reeling under the high cost of homes, which are not in anyway in control of real estate developers, and this Budget is a disappointment for people who were expecting rationalisation in prices of homes.”
According to Supertech Chairman RKArora, although the Finance Minister has announced construction of two crore houses in rural India and four crore in urban areas “no concession either for homebuyers or for the developers has been given in the Budget. He said, “The Budget disappointed the real estate sector with proposal to increase service tax from 12 per cent to 14 per cent. The proposed increases in service tax along with increase in excise duty are bound to result in inflation and overall recession in real estate and other segments.”
Gaurav Mittal, Managing Director, CHD Developers Ltd, put it smartly when he said as a citizen of the country, the Union Budget 2015-16 is “highly appreciated thereby augmenting the investor sentiments across domain”. But as a member of the
developer community, he said, “The larger issues plaguing the sector were overlooked as we anticipated the Finance Minister to take cognizance of the seriousness of our demands and take appropriate remedial measures in terms of a regulator, implications of LARR Bill, and tax incentives and levies under affordable housing segment could have been a game changer for the real estate fraternity.”
Anil Mithas, CMD, Unnati Fortune Group, said, “Although Budget 2015-16 doesn’t bring any fireworks to the Indian realty sector as was expected by the industry, announcements like 8-8.5 per cent GDP growth forecast for the next fiscal year, ‘Housing for All by 2022’ and allotment of Rs.70,000 crore for Infrastructure development, will keep the market sentiments high in the coming months.” He said though there are proposals in the Budget to rationalise capital gains regime for REITs and to permit foreign investments in Alternative Investment Funds (AIFs). there are no clear details.
Ravi Saund, COO of JMS Buildtech, was of the opinion that apart from Rs 7O,OOO crore disposable funds for the infrastructure sector, ‘benami’ property transaction Bill to tackle black money transactions in real estate and deferred GAAR implication are the share of real estate pie in the Budget. It is evident. he said, “The current Budget does not hold much in the platter for real estate industry.” However, he added, “Holistically, the impetus was given to manufacturing sector and rural India to bridge the widening gap with the urban connect. With this prospect one can assumethattherewould be huge opportunity for real estate market in Tier-2 and Tier-3 cities.”
Neeraj Gulati, MD, Assotech Realty, told Realty & More that the Budget was “quite inadequate’ from the real estate standpoint. He said, “The industry demands for more sops to boost domestic demand and reduced borrowing costs have not been addressed in the Budget”. Affordable housing, he said, will definitely continue to be an area of focus. “But to encourage developers to enter into the budget homes segment in order to take advantage of tax incentives, the Government should have emphasised on the timely and transparent implementation of the announced schemes,” he added.
David Walker, Managing DirectcrofSARE Homes, said, “We are enthused by the reduction of the corporate tax and MAT as it will help operations of corporations. The Govemmenfs move to rationalise the capital gains regime for REITs and inviTs, howevet will be beneficial for the commercial realty space. Budget once more falls short of meeting the expectmions of the real estate sector, mainly the residential housing segment.”
Aman Singh Gehlot, Directcr of Ambience Group, called Jaitely’s Budget “a common man’s Budget with a long-term growth plan.” He also said, “This year’s Budget has fuw incentives for reel estate sector as revised taxation rules for REITs, monetising of gold, and tax-free infrastructure bonds will create a regular cash flow for the already cash-starved sector.” The Budget, he said, also includes proposals for developing two crore houses in rural and four crore in urban areas thus aiming to achieve ‘Housing for All by 2022’. “This will also create added opportunities for the housing Sector.” he summed up.
Manish Agarwal, MD, Satya Group and Secretary, Credai NCR, told Realty & more.It is a progressive Budget with nuanced, comprehensive and stabilised long-term vision. The measures, such as reduction in corporate tax to 25 percent over four years. abolishing of weahh tax and Government’s commitment to ‘Housing for All’ and ‘Make in India’ will aid realty sector substantially.”
According to Anuj Goel, Executive Director, KDP Infrastructure, “This Budget scores both on short-term respite as ~II as long-term vision. On the one hand, it has created space through exemptions for more individual savings, on the other hand measures like a roof for each family by 2022, push for rural development, universal pension and security 5)stem will create secure and strong society. Goel said, “For the housing sector; this Budget has a lot of both direct and indirect provisions which will have positive impact and bring it back in green zone.”
Aman Nagar, Director, Paras Buildtech, said, “”It is essentially a balanced Budget with more of long-term undertone. The Budget has sought to build a strong foundation for the growth of housing sector aaossthe length and breadth of country. We are going to see a lot of action in rural areas and semi-urban areas postBudget which is good for the country.”
According to Anil Kumar Tulsiani, CMD, Tulsiani Constructions & Developers, ‘We were Expecting some big announcements from the Government as this was the first Budget presentation by the BJP. led Government However. Budget did not have much for real estate sector. In fact, inaease in service lalt from 12.36 per cent to 14 pet cent might affect the cost of raw material which in turn wiD increase the prices of homes. In a way this is detrimental to the vision of housing for all”.
In a strong reaction, Sanjeev Varshney; MD, Prop leverage, said, “For rea I estate sector there is no hope in the Budget. We expected steps from the Government that would act as a boost for 1he sector. However, the cautious Budget left everything in open and now the hopes are still alive from the next year’s Budget. As on the ground, we are facing a lot of queries for price reduction in real estate but this Budget left us speechless when it comes tD reduction of prices in real estate.”
MR Jaishankar,CMD of Brigade Group,said, “It is a good growth-oriented Budget, with special emphasis on infrastructure, Swacch Bharat, introduction of pension schemes, rurbing black money and improving ease of doing business. But as far as housing industry is concerned, there is no special encouragement in spite of ‘Housing for All’ vision. To that extent for our industry the Budget is disappointing’.
According to Kishor Pate, CMD, Amit Enterprises Housing Ltd., “The Budget has fallen short of expectations and not delivered on many of the expected counts. It has not provided any direct relief for the common man. It has not increased personal income tax deduction limits, nor has it provided any relief for home loan borrowers.”
In a major move, Pate said, “The Finance Minister has removed wealth tax altogether and replaced it with a new Super Rich tax applicable only to assets worth above Rs 1 crore. This means that for the majority of Indians, there will no longer be a tax on property ownership and that only super-luxury homes will be taxed. This is a big relief for the Indian middle class.”
Om Chaudhry, Founder & CEO, FIRE Capital and Chairman, Astrum Value Homes, said, “While intent has been restated in terms of ‘Housing for all by 2020’, no specific steps have been taken in this Budget. The increase in service tax will increase construction costs and make homes costlier.”
Dhirender Gaba, MD, Fairwealth Housing, said, “The announcement of Union Budget of 2015-16, has not given any expected relief to the real estate sector in terms of revival of the industry. The developers, buyers and the investors had been cooling their heels to the announcements of a much awaited pronouncements by the Finance Minister with regard to the reduction in the interest on home loans, apparent single window clearance, incentives for the affordable housing and the inherent encouragement literally to take a step to buy the property. To our utter shock and surprise the increase in the service tax from 12.36 per cent to 14 per cent, the Government has not only made the common commodities dearer in general but the property buying in particular. The Budget is very disappointing particularly for the real estate sector.”
Sunny Bijlani, Director, Supreme Universal, finds it a “Growth-oriented budget to kick-start the investment cycle.” He added, “From the real estate industry point of view, the Government has made one much-needed announcement and that is with respect to Fils being permitted to invest in Alternative Investment Funds (which includes REITs). Also the Finance Minister has clarified that such funds will have a pass-through status.” However, he regretted that there are no incentives provided to the sensitive affordable housing sector.
P Sahel, Vice-Chairman of Lotus Greens, said being a responsible member of the realty sector, he welcomes the Union Budget. “It is a step in the direction of achieving the long-term vision that has been articulated through a range of initiatives such as Infrastructure development, ‘Housing for All’, DMIC, boosting real estate investments through REITs & INVits and the formation of an expert committee for reviewing the multiple clearances for projects, he elaborated.However, he was apprehensive that the proposal to increase service tax “will lead to high construction cost due to increase in material and end-product cost.”
Sanjay Malhotra, Chief Financial Officer, Emaar MGF, expressed the view that the Budget “clearly shows the focus of the Government towards sustainable growth, investment in infrastructure, employment generation and skill development.” He also welcomed the Government’s focus on ‘Housing for All by 2022’ and removal of some of the tax deterrents for Funds and REITs. Overall, he said, the Budget “takes India forward on a path of inclusive growth, supported by steps that will make it easier to do business in India and a stable and non-adversarial tax regime.”
Sam Chopra, Founder & Chairman, RE/MAX India, said, “We are glad to see that the Government has allowed foreign investment in Alternative Investment Funds (AIFs). With this initiative, it is a win-win situation for the developers and investors of our country.” He said, “Sincethe Government has also proposed to raise the investment in infrastructure to VO,OOO crore, it will be a big boost to initiatives like 100 Smart Cities and ‘Housing for All’. Also, the introduction of new and more comprehensive Benami Transactions (Prohibition) Bill will be a good move to curb the domestic black money,” he said.
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