Union Budget: An opportunity missed for realty

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Published: March 1, 2015 12:10:35 AM

Union finance minister Arun Jaitley, in his Budget speech, has presented a growth-oriented Budget...

Union finance minister Arun Jaitley, in his Budget speech, has presented a growth-oriented Budget. It is positive, because it focuses on massive infrastructure development and aims at strengthening the economy, with the aim to make India an economic super power. When the economy grows, all sectors of industry benefit – what I refer to as the ‘trickle-down’ effect and this takes time.

The positives to the Indian economy will also create positives for real estate, the problem is that the scenario that real estate has been through in the past couple of years – some refer to the past couple of years as a period of slowing sales of real estate and essentially, a situation where all stakeholders in real estate were expecting ‘quick relief’. This is probably why expectations from the finance minister were a tad too high – and the reason why real estate isn’t exactly ecstatic. Going by the Budget speech, the real estate sector did not get sufficient measures to boost the sector and kick-start housing demand.

For the home buyer, the expectation was that Jaitley would provide additional relief through either an increased income tax deduction limit or tax benefits on repayment of housing loans. From an industry perspective, I was expecting something specific for real estate, specifically to incentivise affordable housing, to grant infrastructure status to real estate so that long-term institutional funding could be facilitated – there are quite a few points that we would have expected to find in the Budget Speech.  Sadly, an opportunity missed.

Real estate is an industry that has a positive effect on many other sectors, and growth in this sector has a high correlation with economic growth. In his speech,  Jaitley could have taken up issues that would have have benefited the economy  through a growth in  the realty sector.

Also, the minister  spoke about increasing housing stock. At best, it can be viewed as a ‘statement of intent’, and since there was nothing concrete in the speech as regards to how the implementation will take place — we will have to wait for the ‘fine-print’ to be read first.
There are some ‘non-positives’ as well: the increase in service tax on construction and excise duty on input goods, as also increased cess on petrol and diesel coupled with increase in freight rates on cement will impact the cost of construction.

There are ‘positives’ in the speech that will impact the economy, which in turn, will positively impact real estate. For example, the abolition of wealth tax will attract more investors to invest in real estate. The individual tax payer will benefit to the extent R4,44,200 from the exemptions announced, that in turn will be a positive as it has the potential to result in more home buying. Or, the announcement about setting up an expert committee for legislation on making a pre-existing regulation to expedite approvals, which I interpret as a move towards fulfilling the long-pending demand for a single-window clearance system.

Similarly, the proposal to rationalise capital gains tax for REITs and infrastructure investment trusts is a positive move, in line with expectations.  The take-away here is that it will help raise funds for commercial real estate, and will also be an alternative trading avenue.

So, there are positives for the economy which should create a positive environment for real estate to grow as well – albeit at a much slower pace than what would have been the situation had the Budget provided some ‘big-bang reforms’ aimed at real estate growth. I would conclude by saying that overall it is a good Budget for the economy.

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