The Budget announced by Finance Minister Arun Jaitley laid emphasis on FDI in the realty sector that will not only create affordable housing but also help in easing liquidity requirement for developers, the industry experts said.
"To boost the development of smart cities, the finance minister has proposed changes in FDI for real estate 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 FDI and boost affordable housing," Colliers International associate director Surabhi Arora said.
To encourage development of smart cities, requirement of the built up area and capital conditions for FDI has being reduced from 50,000 sqmt to 20,000 sqmt and from USD 10 million to USD 5 million respectively, with a three-year post completion of lock-in.
The Finance Minister has also proposed to provide incentives, including tax pass-through status to avoid double taxation, for introduction of real estate investment trusts (REITs).
"Incentivising REITs and granting pass through status for taxation is a welcome and essential step for successful implementation of REITs.
"It will help in easing liquidity requirement for developers, paving way to raise easy capital and also provide access to retail investors to benefits from regular income and appreciation benefits from real estate," KPMG partner and head of real estate and construction vertical Neeraj Bansal said.
Arora further said the introduction of REITs would spell scores of opportunities for developers, private funds, financial institutions and other investors, as they can be used as an exit vehicle to rotate funds as per requirement.
"REITs have the potential to solve several issues that act as an impediment to growth of the economy pertaining to transparency, credit crunch, organisation of the property market sector, liquidity of real estate assets and execution of property developments across the country, which would help build infrastructure," she added.