The Budget 2019 tries to focus on reviving sentiments, reinforcing the government’s achievements and pitching a platform that promises overall growth.
Budgets are all about balancing fiscal prudence with populism, but the Budget 2019 was a much bigger challenge for the BJP government. This budget was more about reviving sentiments and countering the waning euphoria, as the government seeks re-election in a few months. Contrary to the norm of muted expectations for interim budgets, most sectors — including real estate — were hoping for a message reinforcing the government’s vision and strategy to address the issues facing the economy. And the budget does not disappoint on the messaging, particularly for the real estate sector.
Reeling under the impact of regulatory and structural changes over the past few years, the real estate sector has been looking for respite from the malaise enervating developers, lenders, investors and home buyers. The government finally acknowledged the need to reduce the GST burden on home buyers, with a Group of Ministers examining and making recommendations to the GST council in this regard. However, it does stop short of committing a timeline to achieve this, which would allow the uncertainty to prevail, differing home buying decisions.
In addition to the high GST on under-construction properties, the overall taxation impact and low yield have been major impediments to residential sales. The government’s move to exempt levy on notional tax is a major relief from a tax liability for the buyer without any real income. This will particularly benefit migrant workers relocating to the metros and drive residential sales in Tier-II and Tier-III cities. Combined with the benefit of rollover of capital gains to two residential houses, this allows homebuyers to diversify their residential investment portfolio, which is expected to benefit residential sales in peripheral locations of Tier-I cities.
For developers, the government has extended the exemption of levy of tax on unsold inventories, from one year to two years, as well as benefits under Section 80-IBA of the Income Tax Act to projects approved till 31st March, 2020. Investment in connectivity and infrastructure spending will also create new demand for real estate. The government’s recent move to encourage more private sector participation in the 6 non-metro airports will accelerate the pace of development in these regions, particularly the North East and create demand and jobs in sectors like retail and hospitality. The new ecommerce regulations barring online marketplaces from selling products of related entities and exclusive marketing arrangements also take effect today, which could add 150-200 bps to brick-and-mortar retail revenues in fiscal 2020, as per Crisil – encouraging developers to invest in development of retail real estate. The National Programme on Artificial Intelligence is a positive step towards innovation and ensure India retains its competitive edge in the global technology landscape, a sector which is one of the largest occupiers of commercial real estate in the country. However, the government did not extend the sunset clause for tax benefits to Special Economic Zones – leaving open another area of uncertainty and speculation.
The government has made announcements to inject more liquidity in the economy and leave more funds with taxpayers to stimulate savings and consumption. Enhanced rural connectivity and schemes like PM-KISAN will provided much-needed impetus to rural income, feeding into the overall consumption for sectors like FMCG – which will boost demand for sectors like warehousing and logistics. Rebate for individual taxpayers earning upto Rs 6.5 lakh and increase in standard deduction for salaried taxpayers will translate into more sales for affordable housing.
The government’s vision of become a Five Trillion Dollar Economy in the next five years and the ten dimensions of vision for 2030, including Ease of Living, digital infrastructure, Make in India, electric vehicles, clean rivers, Sagarmala, Gaganyaan, Ayushman Bharat, farm productivity and efficient governance are a gentle reminder that this is still an interim budget. The Budget tries to focus on reviving sentiments, reinforcing the government’s achievements and pitching a platform that promises overall growth. While the real estate sector needs a lot more to recover, the industry finally finds hope in the final budget of this government.
(By Aashish Agarwal, Head-Consulting Services, Colliers International India)