Legistative initiatives give hope to realty sector
A couple of policy amendments from the government will provide incentives to real estate investors and developers who are wanting to raise capital
The real estate and construction sector saw a spate of legislative initiatives from the government in recent times, many of which are currently being debated in parliament.
The government paved the way for the smooth launch of REITs by clarifying that Minimum Alternate Tax (MAT) would be levied only on actual transfer of shares on listing and Foreign Direct Investment (FDI) norms would be allowed in rent- yielding commercial assets, thereby removing a key investment related restriction by FEMA. The only other industry demand pending in this regard is the demand for exemption of Dividend Distribution Tax (DDT). Both these policy amendments would prove to be incentives for real estate investors and developers looking at rais- ing capital via the REIT-route. At a time when the realty sector is struggling for alternative avenues of funding, REITs will likely improve liquidity in the commercial real estate market.
In April the government also announced intentions of investing ₹ 100,000 crore for building 100 smart cities and to re-develop 500 existing cities over the next five years. Replacing the erstwhile Jawaharlal Nehru N at i o n a l U r b a n Re n e w a l Mission (JNNURM), the new urban renewal mission has been rechristened as the Atal Mission for Rejuvenation and Urban Transfor mation ( AMRUT). While the Smart Cities Mission would invest about ₹ 48,000 crore over the next five years, AMRUT will invest about ₹ 50,000 crore to re-develop the 500 existing cities during the same period. The government also approved the Real Estate Regulatory Bill, introducing commercial in its coverage of segments; even as the lower house of the parliament approved the Goods and Services Tax legislation.
How did the housing market do? Housing launches remained low in the month of April, with cities exhibiting diverse demand trends. Among the leading cities, Chennai observed the highest quantum of new launches in the mid-end segment, largely concentrated in the southern locations of Thaiyur, Semmencherry, Pallavaram, Navallur, Adyar and Guduvancherry. Additionally, new project launches in midend and high- end segments remained buoyant in Mumbai, Bangalore and Pune; while Delhi NCR, Hyderabad and Kolkata saw limited launches during the month. Locations such as Kandivali, Bandra, Goregaon and Powai in Mumbai; Horamavu Road, Budigere Cross, Hennur Road and JP Nagar in Bangalore; and Wagoli and Kharadi i n Pune have seen significant residential development.
Meanwhile, Mumbai, Chennai and Bangalore attracted steady housing demand, primarily for newly launched projects in the mid-end /high-end segments. However, home buyer demand remained subdued in Delhi NCR, Pune, Hyderabad and Kolkata.
Over the past few months, housing demand has weakened against the backdrop of higher property prices and interest rates. Following the Central Bank’s announcement of a status quo monetary policy in early April, a few nationalised and private sector banks have cut lending rates. Going forward, further reduction in lending rates is likely to help improve sluggish property sales in the short to medium term.