A majority of players associated with realty is enthused by some of the proposals related to the sector in the Union Budget 2014-15, presented by Finance Minister Arun Jaitley in the Lok Sabha on Thursday. Going by the initial responses received by Realty & More, it is thumbs up for Jaitley in his first major performance as FM.
Sachin Sandhir, MD, RICS South Asia, said the FM has focused on providing fiscal consolidation and taming inflation, but given a Budget which provides a kickstart to the real estate and construction sector, which he believes will be the harbinger of growth, and will create billions of jobs and employment opportunities, and move the economy back on the growth path.
Regarding the Budget proposal to spend Rs 7,060 crore for 10 smart cities, Sandhir said the initiative was laudable. ”This would have a positive impact on the real estate sector, as developers will be able to offer new projects in the upcoming cities boosting the social, economic infrastructure in the region and create new jobs. However, for the smoother execution of the target, existing land Act should be amended to make the acquisition easy and simpler.”
On the Government’s proposal to changes FDI norms for housing projects for the creation of smart cities, he said as foreign investors have become cautious, real estate developers in the country have to depend largely on domestic capital for a substantial part of the funding, which often covers the cost of land acquired, expenses during the approval of the project and the construction of units. “Keeping the larger vision of creating smart cities and housing for all, the Government has proposed the reduction in built-up area from 50,000 square metre to 20,000 square metre, and minimum capitalisation from 10 million to 5 million. This is definitely a positive step for housing sector. The reduction in built-up area and size of projects will allow mid-sized and smaller developers with good track records better access to foreign direct investment and boost affordable housing in the country. At present, group-housing projects (apartments) are eligible for FDI if the total built-up area is at least 50,000 square metres.
By the enhancement of personal tax exemption limit by Rs 50,000 to Rs 250,000 from Rs 200,000 and the increase of interest exemption limit on housing loan to Rs 2 lakh from Rs 1.5 lakh, the Government, he said, had shown its commitment to provide housing for all by 2022 and encourage people, especially the young, to own houses.
The RICS South Asia head said the decision to allow listings of Real Estate Investment Trusts (REITs) in India as an investment product will boost the liquidity situation of cash-starved developers, who are struggling to find funds for their construction activities. “This would also help boost the subdued investor sentiments in the country. The announcement will help in easing pressure on banks to fund real estate projects.”
The allocation of Rs 4,000 crore through National Housing Banking schemes would enable cheaper credit for affordable housing to the urban poor and buyers in the LIG and EWS categories, he said. “This will also enable the agencies to attract private developers into the development system, who have been shying away from affordable housing given the high cost of land and low margins in the segment,“ added Sandir.
Lastlly, he said the allocation of fund for urban infra projects will help improve the urban landscape and boost economic growth, employment and housing in our cities. Additionally, easing bank lending to infrastructure sector will further strengthen the efforts for improving country’s sector, he added.
Anuj Puri, chairman & country head, Jones Lang Lasalle (JLL) India, said the Finance Minister took a cautious, yet courageous path with his Budget announcement.
Regarding the allocation of Rs. 4000 crore for low-cost housing schemes, he said, “It is very positive that the Government has taken due note of the demand-supply mismatch in the LIG and EWS housing segments, and it remains to be seen how fast these initiatives hit the ground in real time.”
The benefit provided for the residential sector by increasing the individual income tax exemption limit from Rs. 2 lakh to Rs. 2.5 lakh, he said, “will increase disposable income of individuals and would have further implications on their ability to service home loans.”
Puri said construction costs have been rising at the rate of 17 per cent over the last three to four years, and this Budget has not provided enough measures to bring down these costs. “Contrary to expectations, material costs involved in real estate construction will remain high over the near-to-medium term, which is bound to put pressure on developers’ margins.”
As promised in the new Government’s manifesto, it has proposed the creation of 100 smart cities across India. The Budget has allocated Rs. 7060 crore towards this end, thereby giving a financial sign-off for this concept. Mr Purti said, “This will have very positive implications for real estate across all segments, namely residential commercial, retail and hospitality. Smart cities, by definition, imply considerable demand for technology-enabled services, and this is a big positive for IT/ITeS companies in India. Significantly, as much as one-third of the country’s demand for office space emanates from this sector.”
Overall, Mr Puri said, “The real estate sector’s expectations have definitely not been met completely in this Budget. However, given the economic situation prevailing in the country, this is not really surprising as the Government needs to balance myriad issues while addressing growth. We are satisfied at the real estate sector is once again headed in the right direction.”
Manoj Gaur, MD, Gaursons India Ltd, said, “This is a good Budget for real estate sector in terms of increase in the investment and housing demand. We had a lot of expectations with the Government and they did well in some parts like development 100 smart cities with Rs 4000 crore for affordable housing to NHB will definitely boost the morale. Also, the Government has announced the REITs which will help to reduce the money shortage of developers.
Gaur said another part which will help the homebuyers is that home loan rate will reduce soon in near future and currently the Government has increased the tax exemption limit for interest payment on housing loan Rs 2 lakh now. However, he said there was no mention in the Budget regarding single- window clearance and infrastructure status.
In his reaction, Vijay Jindal, CMD, SVP Group, said; Good Budget by Finance Minister as hoped by real estate. With these optimistic figures, now we can hope that real estate sector will write a new story of opportunities. The proposed Budget is showing brand new sunshine towards positivity.
The Budget has announced Rs 7060 crore to develop 100 smart cities in the country and Rs. 8000 crore for rural housing scheme. These proposals, he said, “will strengthen money liquidity as well as employment in the real estate industry. The Union Budget has also offered low-cost housing loan and tax exemption from Rs 1.5 lakh to Rs 2 lakh along with motivational Rs 50,000 crore investment for urban infra projects which stimulate buyers and investors to put money in residential and commercial projects that will boost the industry upwards after long term slowness. REITs and FDI are welcoming steps from the Government.”
Amar Sinha, executive director, Wave Infratech, in his reaction to the Budget said, “We welcome the Government’s impetus to provide 100 smart cities in India. We at Wave Infratech remain fully committed to this initiative and are already in the process of setting up India’s first and largest Smart City – Wave City at NH 24 since 2011 along with IBM.”
Owais Usmani, MD, Presidency Infraheights Pvt. Ltd., said, “Expectations were high, and Finance Minister tried to live up to it in the Union budget 2014-15. With the announcement to promote FDI in real estate sector, it will definitely boost investment opportunities. Also a welcome step came in the form of approval to Real Estate Investment Trust (REIT) the demand for which developers have been asking for quite a long time. The greatest benefit will be that of fast and easy liquidation of investments in the real estate market unlike the traditional way of disposing of real estate. The Securities and Exchange Board of India (SEBI) would have a control on it making it easier to invest in real estate in the country.”
Vikas Sahani, CMD, Property Guru, said, “We expect that Government would have announced more sops for affordable housing. Affordable housing remains a segment where the Government should definitely continue to provide developers with tax-free status which was available earlier. Allocation of Rs 4,000 crore to national housing fund under the scheme, credit for low cost housing programme and special exemption on tax to promote middle housing is appreciated. Unfortunately, long pending real estate regulatory Bill and single-window clearance still didn’t seen a nod from the Government. Moreover as a buyer it would have been appreciated if the individual tax exemption limit would have been increase a bit more.”
Dujender Bhardwaj, executive director, ABCZ Builders, said, “Policy initiatives that can address the issue of crumbling infrastructure in the existing cities and serve as a guiding light to create 100 new smart cities with an investment of Rs 7060 cr will relieve the burdened metros and Tier-I cities. It is therefore essential to formulate Budgetary policies with a vision and a plan for next 10-15 years to cope with the demand for increasing urbanisation; plan for big FDI sops in real estate will boost the sector. It is important to relieve the main cities from the population burden and also to bring planned infrastructure for the people. Interest on housing loan deduction upto 1, 50,000 to 2, 00,000 is a cumin seed in a camel’s mouth for home buyers.”
In his reaction, David Walker, executive director, SARE Homes, said, “The new Government has provided a balanced, insightful Budget which clearly lays out a roadmap for development. The commitment to a stable and investor-friendly tax regime, resolving disputes and blocked projects and various measures to simplify rules and regulations will give great confidence to investors and providers of capital, which is essential for India to achieve high growth.”
For the real estate sector, Walker said the increase in interest tax deductibility on home loans and the increase in limits for the priority lending are welcomed as these will reduce the cost of finance. “The introductions of REITs is also welcomed as it eliminates duplication of taxation and so will lower cost of finance. This will help developers attract long-term funds from foreign investor community,” he added.
According to Alok Tyagi, chairman ATN Infratech Pvt Ltd, “In a bid to boost investments in the real estate industry, Finance Minister Arun Jaitley today said that the Government intends to provide necessary incentives for introduction of real estate investment trusts (REITs). He also said that REITs would be given a tax pass-through status to avoid double taxation. However, no clarity has been provided on whether DDT or capital gain on transfer of assets to REITs is exempt. Clarity on REITs topped the list of most realtors. It is expected that REITs can prove to be a game-changer for cash-strapped and highly leveraged developers. If and when introduced, REITs are expected to attract more global investment and bring transparency into the sector.”
He said, the increase of the tax limit in the home loans will certainly benefit the buyers and will boost the sales. Although, he said, the industry was expecting a lot on other serious issues like single-window clearance and more but “overall this Budget is people-friendly.”
Rajesh Goyal, managing director, RG Group, said, “Today’s Budget is a positive approach of the new Government. The Govt. has assured to give shelter to everybody by 2022 which can only be done by promotion of low-budget housing which is a good sign. The fund of Rs 7050 crore has been allocated for the development of 100 smart cities which will boost the opportunities for real estate sector in the Tier-II and tier III cities. The reduction in FDI condition from 50,000-sqm. area to 20,000 sqm and fund limit from $10 million to $5 million will motivate foreign investors to come forward and invest in real estate industry which is going to ease the liquidity crunch. For buyers and investors home loan rebate from Rs 1.5 lakh to Rs 2 lakh is a welcomed step.”
Ravi Madan, director, Realtypapa.com, had a mixed reaction to the Budget. He said, “The fact that a lot of required consideration is given to education; by the means of primary education, new IIT’s & IIM’s and the proposed medical institutions is absolutely welcoming as this will set the rhythm right for future. The acceptance for revival of growth in manufacturing and infrastructure suggested in this Budget also raises the hope as it will impact the common man directly. Other very comforting factors were setting up exclusive funds for price stabilization, climate change, etc. which can minimise the turbulence in regular day to day life.
Specific to the real estate sector, the increase in limit for housing loan interest deduction from 1.5 lakh to 2 lakh is surely appreciated, though we had expected more than this to give the real boost to this sector. Another moving bit is the announcement of developing 100 smart cities which will surely engage the real estate market from tip to toe. I guess beyond these, there was not much focus given to this sector which is quite disappointing. A lot of us were looking forward to get a headway towards regulation and development Bill to set up a real estate regulator, but it seems this does not fall into Government’s list of priority as of now.”
Manish Agarwal, MD, Satya Group and secretary, CREDAI, NCR, had the following to say on the Budget, “A cursory glance on the Budget 2014-15 makes it amply clear that the Government looks determined to bring economy and the real estate sector back on the track. Smart cities, allocation to urban and rural housing, boost to post infrastructure and connectivity, tweaking of FDI for real estate sector and tax rebate to REITs will provide much needed boost to the real estate sector in general and country’s economy in particular. Some supplementary measures like interest exemption from housing loan, increase in saving limit, creation of infrastructure investment trust, support to encourage manufacturing industry, encouragement to tourism and sport facilities too will have positive impact. Overall, it’s a futuristic Budget which looks like first of five installments to push growth, create jobs and re-establish our country as investment destination.”
Gaurav Gupta, general secretary, Raj Nagar Extension Association and director, SG Estates, said among the numerous challenges faced by realty sector, many have been addressed in the Budget. He said the focus of the Government towards proposing some growth-oriented policies for the real estate sector is appreciable.
Gupta said, “Easing tax norms for REIT, allocation of Rs.4,000 crore for affordable housing via the National Housing Bank will bring optimism in the real estate sector which will result in surging positive effects on the economy. Besides, a number of initiatives like the additional tax exemption on housing loan interest for self-occupied homes raised to 2 lakhs from the present rate of 1.5 lakhs, is also commendable and this will make it an interesting proposition for buyers, investors and developers.”
According to Gupta, metro cities will be benefited with a decrease in built-up area for FDI in real estate. “The development of smart cities along with industrial corridors will further give the fillip and will have multiplier effect. The proposed policies will encourage activity in real estate industry and bring a wave of fast-track development.”
R.K Arora CMD, Supertech said incentive for affordable housing loans of Rs 4000 crores for urban poor and weaker sections of society through National Housing Bank (NHB) will certainly set momentum in real estate activities. Also, allocation of Rs 7060 crore for 100 new smart cities will provide opportunity to developers to start set up projects in new locations where land is available at reasonable costs. Arora added a special incentive introduction to REITS will resolve issues of taxation, long term financing and liquidity for infra project. He said personal income tax exemption from the present Rs. 2,00,000/- to Rs. 2,50,000/- and investment limit U/s 83 from Rs. 1,00,000/- to 1,50,000/- and the exemption for Housing Loan Interest from Rs. 1,50,000/- to Rs. 2,00,000/- will provide relief in tax liability to middle income group which will translate into demand in real estate properties.
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