Real Estate industry reacts positive to Union Budget 2014-15
Real Estate industry reacts positive to Union Budget 2014-15
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, 99acres.com
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.