1. Budget 2016: DDT exemption will pave way for REITs launch

Budget 2016: DDT exemption will pave way for REITs launch

Budget 2016: The positive sentiment witnessed in real estate right from the beginning of the festive season in 2015 had created expectations that 2016 would get off to a positive start.

Published: March 1, 2016 4:08 AM

Niranjan Hiranandani, founder and managing director, Hiranandani Group

Budget 2016: The positive sentiment witnessed in real estate right from the beginning of the festive season in 2015 had created expectations that 2016 would get off to a positive start. Across Mumbai, suburbs and the Mumbai Metropolitan Region (MMR) as also the state of Maharashtra, real estate stakeholders had high expectations from the upcoming financial budget 2016-17, the hope was that it would provide relief to the sector. To a certain extent, it has fulfilled some of the expectations, be it as regards removal of DDT from REITs; allowing 100% deduction on profits made by entities constructing affordable houses and hiked HRA deduction.

The Budget is among the issues which the real estate industry watches very closely. We had a Budget speech in which the Hon’ble Finance Minister Shri Arun Jaitley essentially, has pulled off a balancing act – he has sought to rein in fiscal deficit, largely with the hope that this will enable the RBI Governor to cut rates. It is a long shot, wherein he has sought to ensure fiscal deficit is kept in check, and that by itself becomes an opportunity to spur growth by the expected cut in rates by the RBI. Once this happens, it should enhance positivity in real estate.

Not everything positive for real estate will come from the Budget speech. For one, implementation of GST is something that will have a major impact, but we are waiting for a ‘time frame’ as regards its implementation. Secondly, we have the upcoming implementation of real estate regulatory law. If through proper implementation, real estate regulatory law lives up to expectations, in 2016 we will see a more transparent, more professional real estate. Real estate development companies will reflect positive changes as a result of the regulatory laws, and I hope the positives which the Hon’ble Finance Minister has mentioned in his Budget Speech will result in good news for all stake holders in real estate.

Secondly, in the Budget speech, we had expected some aspects which would make home loans even more attractive, ensuring that ‘fence sitters’ turn into ‘actual buyers’. The Hon’ble Finance Minister has introduced something positive in terms of HRA and taxation benefits for individuals who (i) don’t own a house and (ii) do not get a house rent allowance as part of their salary. This segment is entitled to an annual tax deduction of Rs 24,000, which is proposed to be raised to Rs 60,000. Hopefully, this will have a positive impact.
To my mind, the biggest paradigm shift that comes from the Budget proposals for 2016-17 relates to REITs. Exemption of the Dividend Distribution Tax (DDT), clears the final hurdle for successful listing of REITs in India. I expect some REITs to get listed this year, I estimate REITs listing of a few billion dollars happening.

Regardless of what it says in the bold text and in fine print, I expect the Union Budget 2016-17 to result in positives for India’s economy, especially when viewed from 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 start.

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