Balanced Budget positive for Economy, has positives to make affordable homes for common man a reality

Mar 2, 2016

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Tax holiday introduced for developers of affordable housing projects
Deduction from interest on loan introduced for first home buyers
Exemption from DDT in a REIT structure, monetisation through listing to become a reality soon
Digitisation of land records, under The National Land Record ModernisationProgramme

MUMBAI, 29 FEBRUARY 2016: The Budget Speech by the Hon’ble Finance Minister Shri ArunJaitley was positive for the economy. Any Budget is always a toss-up between reining in inflation and pushing growth opportunities, and the Hon’ble Finance Minister has taken the right steps. As he has done in the past, Shri ArunJaitley refrained from any ‘Big bang’ announcements, opting to lay the foundation for balanced economic growth. The focus this time is on infrastructure and rural development; this should provide the much needed fillip to economy, in turn creating a positive for the real estate sector. The massive push to infrastructure spending, incentives to the MSME sector as also initiatives like ‘Make-in-India’ should get a boost, and this will benefit real estate in the long run.

According to Mr NiranjanHiranandani, Founder & MD, Hiranandani Group and President (West) of National Real Estate Development Council (NAREDCO), the biggest paradigm shift that comes from the Budget Speech relates to REITs. In his Budget Speech, the Hon’ble Finance Minister has proposed that any distribution out of SPV income to REITs and INVITs with specified shareholding will not be subject to Dividend Distribution Tax (DDT). This is likely to spur investments in REITs, as effectively, this clears the final hurdle for successful listing of REITs in India. This, is the biggest plus from the Budget Speech; a paradigm shift, and expect a few million dollar worth of REITs listing this year.

Mr Abhhishek Goenka, Partner and Leader – Real Estate Tax, PwC Indiasaid “’Housing for all’ has been on priority for the NDA government and the Budget 2016 is reflective of the same. Tax holiday has been introduced on affordable housing projects approved until March 2019. In order to ensure that the project is completed on time, the deduction is available only towards projects completed within 3 years. To boost demand for housing, additional deduction of interest on loans to first home buyers has been introduced. Exemption from service tax on construction of affordable housing projects is another positive step in this regard. This will encourage real estate developers to create more affordable housing stock.”

Similarly, first time home buyers will get an additional deduction of Rs 50,000 on interest for loans up to Rs.35 lakh where the house value is Rs 50 lakh; so peripheral areas of the Mumbai Metropolitan Region (MMR) and locations in Maharashtra’s Tier-2 and Tier-3 cities should witness a boost in demand for affordable and mid-segment housing. This is the where the Budget offers the positives, which can make affordable homes for the common man a reality.

Ensuring that home seekers get ‘Affordable Housing for the Common Man’ in the MMR is something that will largely happen in peripheral areas; and ensuring that these homes are connected to work places, including the CBDs of Mumbai, is a factor of transport linkages. Across Mumbai and the MMR, the road and railway networks offers some of the most efficient mass rapid transit options for the common man looking at affordable homes in peripheral areas of metro cities as also new real estate developments. It is in this light that we have to view the focus on infrastructure, particularly highways, mentioned in the Budget Speech. In Mumbai and the MMR, road and rail connectivity have been the biggest driver of real estate growth in peripheral areas. New urban conglomerations have developed as a result of road and rail connectivity, and these should get a fillip because of the expected growth in connectivity as infrastructure develops, Mr Hiranandani added.

Talking about the government’s focus on digitisation of land records under The National Land Record Modernisation Programme, Mr Goenka said that this is a critical step towards dispute free title especially in the rural areas. While certain tax reforms have been introduced for the real estate sector, the long pending demand for grant of industry status continues to remain. This was a much needed ask by the debt laden developers who will now face challenge of funding by banks.

From the developers’ perspective, Mr Hiranandani stated, “Excise duty exemption on ready-mix concrete used in construction sites augurs well for the construction industry. While I expect the Union Budget 2016-17 to result in positives for India’s economy, my focus is on the macro-economic perspective. For real estate, it could have been even better, but the three main plus points – removal of DDT from REITs; allowing 100% deduction on profits made by entities constructing affordable houses and increased HRA deduction are a good starting point, hope fully the fiscal will see more positives for real estate being announced.”