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Budgeting for the long run
Hindustan Times  |  February 10, 2020

Aishwarya Iyer

The Budget announced on February 1 dampened the high expectations of the real-estate sector, which has been reeling under liquidity challenges caused by the NBFC crisis. However, while developers and realty consultants feel there were no quick fixes offered to help the industry recover at the moment, there were positive takeaways for the long term.

 

Aside from the affordable housing push and income-tax relief, there is a focus on alternative segments such as warehousing, establishment of data centres and smart cities that is expected to indirectly benefit the realty industry. Also the additional push on developing national highways and construction of airports will eventually become an ally for real-estate sector to grow further.

 

A mixed bag

 

Though the income tax relief provided is being lauded as a positive point, industry players aren’t happy about it. Viewing the tax cut as a standalone factor without any added benefits is a meaningless exercise.

 

“The only way in which this Budget can boost the real-estate sector is by accelerating growth, thereby inducing demand for new homes,” says Satish Magar, national president of the Confederation of Real Estate Developers Association of India (CREDAI). “No sector-specific measures such as providing more liquidity for the sector, one-time restructuring of loans and tax deductions on home loans to give impetus to buyer sentiment were announced to revive the ailing sector, except for extending the tax exemption for one more year till March 2021, to affordable housing developers.”

 

Lowering of income tax rates with removal of exemptions may not lead to any meaningful boost in consumption, adds Shishir Baijal, chairperson at realty consultancy CREDA. “And as far as the funding constraints for the sector are concerned, the government spoke about enhancing the partial credit guarantee scheme for NBFCs, which again may not suffice for the ailing realty sector.”

 

What could have helped here is additional rebates, waiving off several charges on the way to secure a housing loan and further of tax benefits for home buyers. For instance, a hike in the Rs 2 lakh tax rebate on housing loan interest rates under Section 24 of the Income Tax Act, says Anuj Puri, chairperson of Anarock Property Consultants. And this could have kick-started healthier demand for housing.

 

While nothing in specific was laid out for the real-estate sector to benefit directly, experts are joining the dots to see how the cost allocation in alternative segments could boost the industry.

 

For the retail space, one of the largest and most diverse segments, there was nothing in the Budget to boost consumption. And analysts are concerned about the segment’s impact on the sector. “There are neither any benefits that could have indirectly benefitted developers of retail assets, says Shubhranshu Pani, managing director for retail services and stressed assets, management group, at realty research company JLL India.

 

“We have to wait and see the impact of the personal tax initiatives on consumption and how much of the savings by taxpayers will translate into demand and consumption in the retail sector, but it is unlikely to be much,” he adds.

 

Points overlooked

 

The Budget subsequently lacked proper allocation of costs for real-estate and instead, much emphasis was laid on targets for the annual rate of inflation and other fiscal policies, says Niranjan Hiranandani, president of the National Real Estate Development Council (NAREDCO). “The labour intensive sector which had pegged its hopes on additional liquidity infusion, tax reforms and rental housing was overlooked in the Budget.”

 

On the other hand, Puri points out that the abolition of dividend distribution tax (DDT) for corporates is a bold move by the government and will help businesses diversify or expand and make India an attractive destination for investors, thereby boosting foreign investment.

 

This will eventually pave way for many firms to grow and, in turn, generate demand for office spaces benefiting the commercial real estate.

 

But he also feels that the Budget could have addressed critical issues. “There were no announcements on implementation of land reforms. The 15% tax rate for companies looking to set up new factories can be applied only if they can acquire land easily. Further, bringing greater transparency to India’s outdated land records system would help attract more foreign investors and speed up the approval procedures for real-estate projects,” says Puri.

 

Rays of hope

 

Rather than giving direct benefits to residential real-estate as a whole, the finance minister laid more focus on alternative segments within real estate such as warehousing, data centres, schools and hospitality market with 100% tax exemptions on sovereign wealth funds towards infrastructure investments. “This will help infuse much-needed funding into the sector,” says Chintan Patel, partner, deal advisory and national head, building construction and real estate, at KPMG India.

 

Also, the co-living space, even though it is in its nascent stage, was ignored. However, several educational initiatives are being viewed closely to

 

Patel also states that the Study in India programme, through which students from Asian and African countries would receive scholarships to study in the Indian higher education institutes, is likely to boost the co-living segment by generating demand for student housing.

 

Additionally, the focus on urban development by proposal of five additional smart cities will automatically provide a thrust to the sector, adds Anurag Mathur, CEO, Savills India, a realty research consultancy. Along with this, plans for developing strategic national highways have also been announced, which can help bring about developmental changes in the realty space as well.

 

The Budget’s focus on infrastructure upgrade of Chennai-Bengaluru and Delhi-Mumbai Expressway, estimated to be completed by 2023, seems to be a step in the right direction. “This will open up new markets for builders. Proposal of the development of 100 new airports to be built by 2024 under the Udan scheme help too,” says Ashok Mohanani, developer and vice-president, NAREDCO Maharashtra.