A critical deal for the industry in the Budget was the clarity on the structure of Real Estate Investment Trusts (REITs), which have the potential to bring in $10 billion or nearly R60,000 crore investment. Finance minister Arun
Jaitley said in his Budget speech on Thursday that REITs will be given the ‘pass through’ status.
“The regulations provide that income tax and dividend distribution tax would be levied at the SPV level. Dividend income of the REIT would be exempt and onward distributions by REITs would not be subject to any taxes or taxes in the hands of investors,” said Gaurav Karnik, partner (tax and regulatory services), EY.
Developers like DLF and Unitech, with a large commercial asset base, have hailed the move.
“The introduction of REITs in the Indian market will reduce cost of business for both Indian and foreign investors. It will also attract global funds to invest in the sector,” Rajeev Talwar, group executive director, DLF, said.
“REITs will also hopefully lead to large-scale participation from retail investors in the commercial real estate space,” Sanjay Chandra, managing director of Unitech, said.
Private Equity funds invested in the real estate space say that REITs will provide an exit route to them, though it may lead to an asset bubble for some time.
“Introduction of REITs will provide a new source of capital to increase the stock of investment grade commercial office space. However, given that the total supply of investment grade office space in India which would qualify for REITs is less than 30% of the total stock, it may lead to an asset bubble in the short to medium term,” Jasmeet Chhabra, managing director, Redfort Capital, observed.
The finance minister also set the tone for developing the 100 smart cities spoken about in his party’s electoral manifesto. The government has provided R7,060 crore in the current fiscal for developing 100 smart cities. “This is a big positive as it will create new economic zones around the cities and help in de-congesting the existing cities of India,” said Niranjan Hiranandani, managing director, Hiranandani Group.
Jaitley also focused on building affordable housing in urban and rural areas. Allocation to the National Housing Bank (NHB) has been increased to R8,000 crore for rural housing.
Also, with an aim to provide low-cost, affordable housing to the urban poor and low-income group buyers, a scheme has been devised.
The scheme would be anchored in the National Housing Bank, which will receive an additional R4,000 crore towards this. NHB is expected to use these funds to increase the flow of cheaper credit for affordable housing.
To make housing accessible to all, income tax exemption given to interest payment on home loans has been raised from R1.5 lakh per year to R2 lakh per year. “With this increase in the take-home pay, the assesses will be in a better position to take up a higher loan—especially useful in the affordable housing segment in the price range of R25 lakh to R30 lakh,” said Anshul Jain, chief executive, DTZ India.
The terms and conditions for foreign direct investment in the development of smart cities have been relaxed. The minimum built-up area requirement for a project that is eligible for FDI has been reduced from 50,000 square metres to 20,000 square metres. The minimum ticket size of such FDI has also been reduced from $10 million to $5 million.