Real Es­tate in­dus­try re­acts pos­i­tive to Union Bud­get 2014-15

Real Es­tate in­dus­try re­acts pos­i­tive to Union Bud­get 2014-15

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Surabhi Arora, As­so­ciate Direc­tor, Col­liers In­ter­na­tional

Hon­or­able Fi­nance Min­is­ter with the pre­text of devel­op­ment of smart cities has pro­posed changes in FDI for real es­tate sec­tor. The re­duc­tion in built up area from 50000 sq mtr to 20,000 sq. mtr, and min­i­mum cap­i­tal­iza­tion from 10 mil­lion to 5 mil­lion is def­i­nitely a pos­i­tive move for real es­tate sec­tor. The re­duc­tion in built-up area and size of projects will al­low mid-sized and smaller de­vel­op­ers with good track records bet­ter ac­cess to FDI and boost af­ford­able hous­ing in the coun­try. The cap­i­tal com­po­nent is of paramount im­por­tance, the in­tro­duc­tion of REITs would be ben­e­fi­cial for the In­dian mar­ket as they not only pro­vide ef­fi­cient ac­cess and flex­i­bil­ity to raise cap­i­tal but also pro­vide an al­ter­na­tive exit op­tion to in­vestor. The in­tro­duc­tion of REITs in In­dia would spell scores of op­por­tu­ni­ties for de­vel­op­ers / pri­vate funds / fi­nan­cial in­sti­tu­tions, etc. as they can be used as an exit ve­hi­cle to ro­tate funds as per the re­quire­ment. REIT have the po­ten­tial to solve sev­eral is­sues that act as an im­ped­i­ment to growth of the econ­omy per­tain­ing to trans­parency, credit crunch, or­ga­ni­za­tion of the prop­erty mar­ket sec­tor, liq­uid­ity of real es­tate as­sets and ex­e­cu­tion of prop­erty de­vel­op­ments across the coun­try, which would help build in­fra­struc­ture. REITs’ in­tro­duc­tion in the In­dian mar­ket would not only of­fer the much-talked-about ben­e­fits but also many long-term ben­e­fits. If we look at the pre­vail­ing sit­u­a­tion in the real es­tate in­dus­try, one of the prob­lems that have been ail­ing the in­dus­try for a long time is non-aligned mar­ket prices of prop­erty to their regis­tra­tion ba­sic val­ues. It causes rev­enue loss to the govern­ment and the dif­fer­en­tial be­tween ac­tual prices paid for the prop­erty and the dis­closed rates at which regis­tra­tion is done, gets ab­sorbed in the black econ­omy.

Kishor Pate, CMD – Amit En­ter­prises Hous­ing Ltd.:

The re­duc­tion of per­sonal in­come tax ceil­ing and the rais­ing of home loan in­ter­est de­duc­tion will def­i­nitely in­crease de­mand for homes in cities like Pune. True to his prom­ises, the Fi­nance Min­is­ter has made sig­nif­i­cant al­lo­ca­tions to­wards in­fra­struc­ture projects in the coun­try. The al­lo­ca­tion of Rs. 37,850crore into the Na­tional High­way Au­thor­ity of In­dia will re­sult in vastly im­proved road net­works, which will in turn re­sult in new vi­brancy in the real es­tate sec­tor. The Na­tional Hous­ing Bank has re­ceived an al­lo­ca­tion of Rs. 8000crore for this pro­gram, which will have. I am es­pe­cially en­thu­si­as­tic about the Rs. 7060crore al­lo­ca­tion to­wards the govern­ment’s pro­gram for cre­at­ing 100 smart city projects.

Arvind Jain, Man­ag­ing Direc­tor – Pride Group:

It is a sat­is­fac­tory bud­get with good im­pli­ca­tions for real es­tate. Sig­nif­i­cantly, the bud­get has in­cluded slum re­ha­bil­i­ta­tion un­der the am­bit of cor­po­rate so­cial re­spon­si­bil­ity. We will now see greater in­volve­ment by In­dia Inc in this very im­por­tant sec­tor and give a boost to sup­ply in the in­ner parts of our ma­jor cities. The FM has given much-needed relief to in­di­vid­ual tax pay­ers by rais­ing the in­come tax ex­emp­tion limit by 50,000 and has also raised the limit of the in­ter­est part of home loans from Rs. 1.5lakh to Rs. 2lakh. The com­bined ef­fect will def­i­nitely be re­newed in­ter­est in home pur­chase by In­di­ans.

Sachin Agar­wal, CMD – Maple Shel­ters:

The bud­get has re­duced the FDI norms for min­i­mum built-up area for af­ford­able hous­ing. Ad­di­tion­ally, Rs. 4000crore have been al­lo­cated to­wards the cre­ation of low-cost hous­ing. This is ex­tremely promis­ing for the af­ford­able hous­ing sec­tor and we will see an in­crease in hous­ing devel­op­ment for the un­der- priv­i­leged in the pe­riph­eral ar­eas of cities like Pune. The relief pro­vided on in­di­vid­ual in­come tax and in­ter­est on hous­ing loans is very sig­nif­i­cant for the bud­get homes sec­tor, since these mea­sures have great­est per­ti­nence to the more fi­nan­cially sen­si­tive home buy­ers. I am happy with this bud­get, in which the Fi­nan­cial Min­is­ter has shown great fore­sight and set the path for eco­nomic re­vival.

Mr. Pradeep Jain, Chair­man – Parsv­nath De­vel­op­ers

we hail the maiden bud­get speech by Hon Fi­nance Min­is­ter, Mr. Arun Jaitly, this clearly sug­gest that devel­op­ment flank taken by the NDA govt. Real Es­tate sec­tor for long time was ig­nored with no sig­nif­i­cant pro­pos­als made to spur growth in this sec­tor. For the first time af­ter the slow­down the Union Bud­get 2014 gives a boost to the real es­tate sec­tor. We thank Hon’ble Min­is­ter for pay­ing at­ten­tion through leg­is­la­tions like REIT, pro­mot­ing af­ford­able hous­ing and al­lo­cat­ing over USD 50,000crores to­wards ur­ban in­fra­struc­ture. Govern­ment’s em­pha­sis on PPP shows its com­mit­ment to­wards a col­lec­tive growth. Al­lo­ca­tion of Rs 7,060crore to de­velop 100 smart cities is cer­tainly go­ing to pro­mote the sec­tor on global front. Fund­ing had al­ways been a con­cern for us as de­vel­op­ers. For­eign in­vestors were also shy­ing away due to am­bi­gu­ity in rules. With im­ple­men­ta­tion of REITs and re­lax­ation in FDI norms, the prob­lem of fund crunch will get mit­i­gated. Cut­ting down the to­tal built-up area re­quire­ment to 20,000 mn sq ft, min­i­mum lock up pe­riod to 3 years and a min­i­mum in­vest­ment of $5 mil­lion is in­deed a wel­come move. Govern­ment has also shown its will­ing­ness to boost ru­ral hous­ing scheme and low cost hous­ing for ur­ban poor and EWS, with an al­lo­ca­tion of Rs 8000crore and Rs 4000crore re­spec­tively. In­tro­duc­ing the tax Re­bate un­der 80C, an in­crease by Rs. 50,000 to Rs.1.5lakhs and hous­ing in­ter­est de­duc­tion limit ex­ten­sion from Rs. 1.5lakh to Rs. 2lakhs will help em­power the mid­dle class by giv­ing them more pur­chas­ing power. Though we have moved ahead in the right di­rec­tion, a lot more has to be done, pri­mar­ily award­ing an in­fra­struc­ture sta­tus to the real es­tate sec­tor.

Mr. Aman Agar­wal, Direc­tor – K V De­vel­op­ers:

“We are ex­tremely de­lighted af­ter to­day bud­get speech by Shri Arun Jait­ley. Real es­tate has fi­nally got its long pend­ing at­ten­tion in the Union Bud­get. We sin­cerely ap­plaud the de­ci­sions made to boost this sec­tor. The re­lax­ation of norms un­der FDI and im­ple­men­ta­tion of REITs are cer­tainly go­ing to pro­vide a cheaper al­ter­na­tive to costlier loans by banks. We were ex­pect­ing this from the Fi­nance Min­is­ter. Al­lo­ca­tion of Rs 8000crore for ru­ral hous­ing and Rs 4000crore for ur­ban hous­ing for poor and EWS are in line with govern­ment’s am­bi­tion of Hous­ing for all by 2022. By al­lo­cat­ing another fund of Rs 7,060crore to de­velop smart cities also shows govern­ment’s com­mit­ment for a col­lec­tive growth. Govern­ment has also em­pha­sized on in­volve­ment of pri­vate cor­po­rate in the devel­op­ment mea­sures. This is in­deed a wel­come move and will al­low pri­vate com­pa­nies play a mea­sure role in govern­ment’s mis­sion 2022. We, how­ever, were ex­pect­ing to get an in­fra­struc­ture sta­tus in the bud­get. This would have al­lowed the sec­tor reap some more ben­e­fits in terms of fund­ing. This re­mains un­ful­filled. Over­all, this is a wel­come bud­get by the Union Govern­ment and cer­tainly prom­ises Ac­chhe Din ahead.

Neel Ratan, Ex­ec­u­tive Direc­tor, Govern­ment and Pub­lic Sec­tor, PwC In­dia

With the ur­ban mi­gra­tion trend, the only way for us to sus­tain as a so­ci­ety is to in­vest in new cities. These new cities need to fo­cus on lever­ag­ing tech­nol­ogy to im­prove ser­vice de­liv­ery, qual­ity of life and at the same time op­ti­mize the us­age of re­sources. Although ac­tual cre­ation for 100 new cities will re­quire large fi­nan­cial out­lays how­ever the cur­rent bud­get al­lo­ca­tion is a step in the right di­rec­tion. This an­nounce­ment will def­i­nitely ex­cite the stake­hold­ers in­clud­ing ur­ban plan­ners, city ad­min­is­tra­tors and in­dus­try to come to­gether and cre­ate sus­tain­able mod­els for new cities. It is es­sen­tial to fo­cus on the right gov­er­nance and reg­u­la­tory frame­works to en­sure speedy ex­e­cu­tion and ben­e­fits re­al­iza­tion. Since smart city con­cept, on the whole, is a nascent devel­op­ment hence it will be pru­dent for the stake­hold­ers to take in­sights from the plan­ners of the few smart city ini­tia­tives like GIFT, DMIC and Naya Raipur. Con­cep­tu­al­iz­ing and de­vel­op­ing new cities is a time tak­ing process there­fore this an­nounce­ment will give the re­quired thrust to fast track the plan­ning of new cities. It has been wit­nessed dur­ing the re­cent past that tech­nol­ogy com­pa­nies have be­come vary of the govern­ment con­tracts, which has led to their re­duced par­tic­i­pa­tion. To re­in­force the level of con­fi­dence in the in­vestor com­mu­nity, it is per­ti­nent for govern­ment to work out mea­sures which help in “Ease of do­ing busi­ness” with govern­ment.

Ravi Saund, COO, CHD De­vel­op­ers Ltd.

The new govern­ment’s maiden bud­get claims to con­tain re­form mea­sures to re­vi­tal­ize growth and drive en­gines of the econ­omy bur­geon­ing again. Will this growth ori­ented bud­get with­stand the test of time? There’s no deny­ing it’s a com­mon bud­get, yet it’s dif­fi­cult to proph­e­size at this mo­ment. How­ever, cou­ple of re­forms an­nounced is a wel­come move. It is pos­i­tive for the hous­ing sec­tor, though the fo­cus is clearly on af­ford­able seg­ment. The govern­ment has en­cour­aged the home buy­ers by widen­ing Hous­ing loan in­ter­est ex­emp­tion U/s 24 B from Rs 1.5lakh to Rs 2lakh cou­pled by per­sonal tax ex­emp­tion slab raised to the level of 2.5lakhs per an­num. The lat­ter will def­i­nitely boost in­vestor’s sen­ti­ments in the real es­tate sec­tor. Real Es­tate In­vest­ment Trusts (REITs), In­fra­struc­ture In­vest­ment trusts and grant­ing pass through sta­tus for tax­a­tion is a wel­come and es­sen­tial step for suc­cess­ful im­ple­men­ta­tion of REIT’s in In­dia. It will help in eas­ing liq­uid­ity re­quire­ment for de­vel­op­ers, paving way to raise easy cap­i­tal and also pro­vide ac­cess to re­tail in­vestors to ben­e­fits from reg­u­lar in­come and ap­pre­ci­a­tion ben­e­fits from real es­tate. This is bound to give the much needed fil­lip to the sec­tor.

The govern­ment is fo­cused on the vi­sion of de­vel­op­ing and mod­ern­iz­ing with the in­tro­duc­tion of smart cities. To make this dream a re­al­ity, the fi­nance min­is­ter an­nounced al­lo­ca­tion of Rs 7,060crores in the cur­rent fis­cal for devel­op­ment of the smart cities and 7 new in­dus­trial cities. This will drive real es­tate devel­op­ment in these pock­ets and cre­ate newer mar­kets. In­fra­struc­ture has re­ceived a ma­jor thrust. The steps to in­crease fund­ing for roads, high­ways, air­ports, power and SEZs will surely add more ter­rain on the In­dian realty map tak­ing tier 2 and tier 3 cities on new growth tra­jec­tory.

Anuj Puri, Chair­man & Coun­try Head, JLL In­dia

In terms of relief to the hous­ing sec­tor, the bud­get has al­lo­cated Rs. 4000crore for low-cost hous­ing schemes. Apart from this, he has also in­di­cated that there will soon be a re­lax­ation of FDI norms for the af­ford­able hous­ing sec­tor. Though the govern­ment has an­nounced such in­cen­tives for low-cost hous­ing in the past, the real task lies in the fast ex­e­cu­tion of the fast ex­e­cu­tion of these ini­tia­tives. It is very pos­i­tive that the govern­ment has taken due note of the de­mand-sup­ply mis­match in the LIG and EWS hous­ing seg­ments, and it re­mains to be seen how fast these ini­tia­tives hit the ground in real time. Sig­nif­i­cantly, the bud­get has in­creased the in­come tax de­duc­tion lim­its un­der 80C, of which the re­pay­ment of prin­ci­pal on hous­ing loans is a com­po­nent. This limit has been raised from Rs. 1lakh to Rs. 1.5lakh. Ad­di­tion­ally, the bud­get has also in­creased the de­duc­tion limit on in­ter­est pay­ment for hous­ing loans from Rs. 1.5lakh to Rs. 2lakh. These two fac­tors alone will lead to a vastly im­proved sen­ti­ment on the hous­ing mar­kets.

Mr. Vi­neet Singh, EVP and Busi­ness Head,

Modi’s Union Bud­get is a mixed bag of op­por­tu­ni­ties. In­vest­ments for state high­ways, air­ports, smart cities, ru­ral hous­ing, in­dus­trial clus­ters, metro rails via PPP mod­els will pro­vide a shot in the arm for devel­op­ment of new real es­tate clus­ters. Set­ting up of mod­i­fied REITs and in­fra­struc­ture in­vest­ment trusts will help cre­ate more liq­uid­ity for the sec­tor. There is some rea­son to cel­e­brate for home buy­ers as well with the tax ex­emp­tion of Rs 50,000 on home loans. How­ever, there are still a num­ber of is­sues that have been left some­what un­ad­dressed. For in­stance, de­vel­op­ers and home buy­ers were ex­pect­ing mea­sures to in­crease trans­parency in new project clear­ances and the land ac­qui­si­tion pol­icy. The real es­tate reg­u­la­tion bill that was man­dated to stream­line pro­cesses has not been touched upon ei­ther.

Mr. Rumi Engi­neer, Head of Green Build­ings, Go­drej Green Build­ing Con­sul­tancy Ser­vices & Head of En­ergy Con­ser­va­tion, Go­drej & Boyce Ltd

“The Eco­nomic sur­vey by our govern­ment on Wed­nes­day hinted at re­form­ing ex­ist­ing poli­cies for the en­ergy sec­tor with fo­cus on cor­rect­ing the present pric­ing dis­par­ity for in­dige­nously pro­duced nat­u­ral re­sources such as gas, coal and crude oil. It also men­tioned its aim to­wards bring­ing the price of these prod­ucts at par with those in the in­ter­na­tional mar­kets. Thank­fully in the bud­get speech the FM has al­lo­cated Rs 500 crore to set up ul­tra mod­ern power projects to be taken up in Ra­jasthan, Tamil Nadu and Ladakh. To sup­port such projects, we should en­cour­age fi­nan­cial in­sti­tu­tions to ex­tend flex­i­ble prod­ucts and con­ces­sional cred­its to sup­port green sec­tor devel­op­ment and the govern­ment should cre­ate stan­dards on ma­te­rial pro­cure­ment for in­fra­struc­ture project and make it manda­tory for them to fol­low the Green Code.

Brotin Ban­er­jee, MD & CEO, Tata Hous­ing

While the new govern­ment has an­nounced a clear man­date in terms of ‘hous­ing for all’, there­fore they need to come up with a de­tailed af­ford­able hous­ing pol­icy. How­ever, to tackle the mas­sive hous­ing re­quire­ment of ur­ban In­dia in an ef­fec­tive and speedy man­ner, the new hous­ing pol­icy should look to sug­gest some vi­able meth­ods for mak­ing af­ford­able hous­ing pos­si­ble in pub­licpri­vate part­ner­ship (PPP) mode.

Ms. Manju Yag­nik, Vice Chair­per­son, Na­har Group

We wel­come the bud­get pre­sented by the hon­or­able Fi­nance Min­is­ter. From real es­tate point of view, we feel it is a mixed bud­get. Al­lo­ca­tion of funds for cre­at­ing hous­ing stock through devel­op­ment of new cities, na­tional hous­ing pro­gram, low cost hous­ing through Na­tional hous­ing bank is sure to cre­ate mas­sive op­por­tu­ni­ties for con­struc­tion across the coun­try.

In­tro­duc­tion of Real Es­tate In­vest­ment Trust is another de­ci­sion to wel­come as this will safe­guard the in­ter­est of the in­vestors and help in cre­at­ing trans­parency in real es­tate trans­ac­tions. The limit of re­bate on in­ter­est on Hous­ing loans has been in­creased to Rs 2 Lakh from Rs 1.5 Lakh is also one of the pos­i­tive as­pect of the bud­get.

While, the above an­nounce­ments are sure to bring in some pos­i­tiv­ity in the sec­tor, the in­dus­try was ex­pect­ing more than this from the bud­get. Im­por­tant long pend­ing de­ci­sions such as in­fra­struc­ture sta­tus to the real es­tate sec­tor and pro­vid­ing for sin­gle win­dow clear­ance scheme were some of the most awaited an­nounce­ments. How­ever a si­lence on these facts has been a dis­ap­point­ment.

Mr. Ku­mar Gera, Chair­man, Gera De­vel­op­ments & Founder Pres­i­dent of CREDAI

The House & In­fra­struc­ture sec­tors have found a pride of place in this bud­get. Hous­ing will be im­pacted pos­i­tively through the var­i­ous bud­get pro­pos­als namely, Smart Cities, Real Es­tate In­vest­ment Trusts (REITs), eas­ing of FDI norms, en­hanc­ing of the tax de­duc­tion limit on in­ter­est for hous­ing loans, the Ur­ban Re­newal Pro­gram and the Hous­ing for All Pro­gram.

These ac­tions will lead to a pos­i­tive im­pact of GDP growth through the pos­i­tive cas­cad­ing link­ages that Real Es­tate devel­op­ment pro­vides.

Un­doubt­edly, Hous­ing & In­fra­struc­ture devel­op­ment have been con­sid­ered a fo­cus area and are ac­cepted as a growth en­gine by this Govern­ment and is in con­trast to the past UPA bud­gets.

Dr. Anand Gupta, Spokesper­son of Builders As­so­ci­a­tion of In­dia

Con­struc­tion In­dus­try, par­tic­u­larly In­fra­struc­ture Sec­tor has been given its due share, up to an ex­tent, by the Hon’ble Min­is­ter” said Shri Sushanta Ku­mar Basu, Pres­i­dent, and Builders’ As­so­ci­a­tion of In­dia. He felt that in­tro­duc­tion of ‘In­fra­struc­ture In­vest­ment Trust’ (IIT) and ‘Real Es­tate In­vest­ment Trust’ (REIT) will be a game changer since fi­nance will be avail­able for longer term with­out much of pa­per work has­sle of Banks / Fi­nan­cial In­sti­tu­tions.

This pos­i­tive feel is ev­i­dent from the up­ward move­ment of share price of in­fra­struc­ture and real es­tate com­pa­nies, and also re­flected from the read­ing of Sen­sex Data.

Dr. Anand J. Gupta, Spokesper­son of BAI echoed the state­ment of Shri. Sushanta Ku­mar Basu and stated that the in­crease of ‘hous­ing loan in­ter­est ex­emp­tion from Rs.1.5lakh to Rs.2.00lakh’ cou­pled with al­lo­ca­tion of Rs.4,000crore for con­struc­tion of Low Cost Af­ford­able Hous­ing will push the de­mand of hous­ing and will re­vive the in­dus­try. He also felt al­lo­ca­tion of Rs.7, 060Crores for con­struc­tion of 100 Smart Cities will change the face of the coun­try.

Mr. Shailesh Pu­ranik, Man­ag­ing Direc­tor, Pu­ranik Builders Pvt. Ltd

We wel­come the bud­get pre­sented by the fi­nance min­is­ter to­day. The over­all bud­get from the real es­tate point of view is pos­i­tive. We see at­tempt be­ing made to solve the is­sue of lack of hous­ing stock in the coun­try by al­lo­cat­ing funds in the Na­tional Hous­ing Bank­ing pro­gramme. This will cre­ate hous­ing stock which is a pos­i­tive move.

The re­duc­tion in built up area from 50,000 square me­tres to 20,000 sq. me­tres for projects and re­duc­tion in in­vest­ment limit from $10 mil­lion to $5 mil­lion, is a pos­i­tive move to­wards devel­op­ment in real es­tate sec­tor.

The bud­get also pro­vides for cre­ation of Smart cities which will cre­ate im­mense con­struc­tion op­por­tu­ni­ties, thereby, in­creas­ing the vol­ume of con­struc­tion in the sec­tor. Another de­ci­sion of in­tro­duc­ing REIT is com­mend­able as it would en­sure the in­ter­est of in­vestors as well as de­vel­op­ers is safe guarded as they in­vest in real es­tate. Slum devel­op­ment will be rec­og­nized as CSR.

This move will en­cour­age de­vel­op­ers to ful­fill the CSR ob­jec­tives while they cre­ate hous­ing for the poor.

For home buy­ers, in­crease in the limit of hous­ing loan in­ter­est from Rs. 1.5lakh to 2lakh will cer­tainly be of help.

While these steps have been taken with a long term so­lu­tions for hous­ing and real es­tate sec­tor, there were cer­tain long pend­ing de­ci­sions such as giv­ing “In­dus­try Sta­tus” to the real es­tate sec­tor and “sin­gle win­dow clear­ance” sys­tem where the govern­ment has failed to talk. These de­ci­sions would have made a greater im­pact on the real es­tate sec­tor.

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