Budget 2018: The last two Union Budgets and subsequent policy reforms have paved a foundation for a robust economy. The long-term benefits of these policy reforms have been acknowledged by almost all the stakeholders of the industry. Although various stakeholders are hoping for various incentives like every year from the upcoming Union Budget, the utmost important need of the sector is demand revival. All the stakeholders are looking for an optimistic budget that will enhance the demand in the economy by improving employment and overall growth. With the Union Budget 2018 announcement around the corner, let’s see the expectations from the perspective of all the stakeholders of real estate from Finance Minister Arun Jaitley.
While the dust of demonetization has almost settled in and developers are becoming used to the Real Estate (Regulation & Development) Act 2016 in their operations, the demand is yet to see the full revival. The regulation is helping to bring back the buyer trust to certain extent and developers are also taking all the necessary steps to complete their existing projects. But the real estate sector is still looking for an enabling environment to deliver the projects on time. Although India witnessed a massive jump in the ratings regarding ease of doing business in 2017, the single window clearance is still a distant reality. With the real estate regulation in place, developers now must take all the approvals in advance to launch the projects, which will increase the holding cost for a developer. Thus, one of the most important ask is the technology-enabled single window clearance system. Besides this, the extension of sunset clause for special economic zones, reduction of GST, industry status to the sector besides affordable housing are some of the other incentives that real estate developers are looking for from the Budget 2018.
Although RERA regulations are in place in most of the states, buyers are still clueless how it can help them with their existing investments. Before making any fresh investments, buyers are looking to untangle their earlier knots with the developers. In my opinion, the demand for the residential sector should automatically intensify once there is a clarity on the existing investments. Besides an increase in purchasing power through increase of income tax slabs; extra incentive for home loan principal repayment, which is currently included in the rebates under section 80C of the Income Tax Act; deduction on interest paid on borrowed capital for under-construction properties from the year of borrowing; increase in standard deduction on rental income are also expected from FM Arun Jaitley in the Budget 2018. Apart from the above, buyers are also hoping that the interest on the home loan would be allowed for the deduction to the extent of full interest paid at least in respect of one house. Currently, a 100% deduction on home loan interest for rented houses is available, while owner-occupied homes are eligible for only Rs 2 lakh deduction.
Watch video: 5 blockbuster income tax moves to expect in Budget 2018
Investors have well applauded the policy reforms that is expected to bring overall transparency in the real estate sector. The increase in transaction volume of real estate investments in 2017 is the testimony of the improved confidence of investors in the industry. However, more steps are needed to bring the sector on par with the international standards. The commercial real estate remained one of the favourite investment avenues for institutional investors in the last couple of years. Although the Security Exchange Board of India (SEBI) has removed most of the hurdles in the listing of (Real Estate Investment Trusts), investors are further looking for several exemptions in the Budget 2018, such as stamp duty on transfer of assets, and ax credits on REIT income for investors to make them more financially viable.
The technology sector has been contributing more than 55% of the total office space demand in India for the past couple of years. Removal of Minimum Alternate Tax (MAT) levied on Special Economic Zones (SEZ) is one of the long-standing demands from occupiers. Besides, developers and occupiers, both are looking for an extension in sunset clause which put an end to the income tax exemption for developers in 2017 and for occupier by 2020.
Besides, there are high hopes for smart cities initiative and occupiers are looking for improvement in infrastructure in these cities to be able to make a move towards Tier II and Tier III cities. Timely delivery of infrastructure development as promised in the metros, as well as these smart cities, is something which is the demand for all the stakeholders as the delay in infrastructure is one of the significant factors that impacts the risk and return dynamics for investors, developers, buyers as well as for occupiers. More than any small incentive for the industry, we are looking for the economy to grow, jobs to be created and more disposable income to drive demand for large offices, new homes, shopping malls and hospitality.
(By Surabhi Arora, Senior Associate Director-Research, Colliers International India)