From a real estate sector standpoint, almost all segments—from housing to investments in SEZs and retail are expected to benefit from the announcement made in the Union Budget 2016-17.
The Union Budget struck a fine balance between being "populist and reformist". From a real estate sector standpoint, almost all segments—from housing to investments in SEZs and retail are expected to benefit from the announcement made in the union budget 2016-17. From an expectation of the industry vis-a-vis the budget announcement, here are the key provisions:
Increased outlay for infrastructure sector; promote private sector involvement in infrastructure creation: The infrastructure sector has received a record allocation of approximately Rs 2, 21, 000 crore for roads, highways and railways in the Union Budget 2016 - 17. Increased focus on upgradation of ports and unused/underused airports and airstrips to improve regional connectivity. A new credit rating system for infrastructure projects, which emphasizes various in-built credit enhancement structures. A Public Utility Bill is to be introduced to streamline institutional arrangements for resolution of disputes in infrastructure-related construction contracts, PPP and public utility contracts. Guidelines to be introduced for re-negotiation of PPP contracts keeping in view the long term nature of such contracts.
Industry expected implementation of investor-friendly REITs by removal of Dividend Distribution Tax (DDT): The Budget announcement revealed that any distribution made out of income of SPV to the REIT will not be subjected to DDT.
Promotion of Ease of Doing Business in Real Estate sector: No specific proposal was laid out for the real estate sector to address long approval processes and multiplicity of authorities resulting in project delays.
Clarity on Urban Infrastructure Schemes: The Budget clearly laid emphasis on infrastructure development, but the focus was more accentuated towards development of rural infrastructure and strengthening the road and rail network of the country.
Promotion of Affordable Housing: 100 per cent service tax exemption for construction of affordable housing under any scheme of the Central or State Government, including PPP schemes. 100 per cent deduction on profits for undertakings building housing up to 30 sq mt for top 4 metros and up to 60 sq mt for smaller cities; provided these are approved from June 2016 to March 2019 and completed during the three-year period post approval. Excise duty exemption, presently available to concrete mix manufactured at site for use in construction work has been extended to ready mix concrete.
Additionally, all those who do not own a house and do not get HRA benefit from employer will get Rs 24,000 HRA support to compensate for the rent they pay. The current limit of HRA deduction has also been increased from Rs 24,000 to Rs 60,000.
Clarity on Sunset Clause for Exemptions to SEZs: Sunset date for exemption of fiscal incentives to SEZ occupiers has been pushed forward from March 2017 to March 2020.
Home Loan Interest Rates and Individual Tax Slabs: While nothing in particular was announced on home loan interest rates, but additional tax deduction has been provided on interest on home loans. For first time home buyers, housing loan interest rebate increased by Rs 50,000 per annum; provided loan is upto Rs 35 lakh for house value not exceeding Rs 50 lakh.
Clarity on Pending Legislations: No clarity was provided on legislations such as the Real Estate (Regulatory & Development) Amendment (RERA) or land acquisition bill. The long pending demand of the industry to be granted infrastructure status was still not acceded to industry.
While the Budget has had many provisions that are positive for the real estate sector, certain key aspects remained untouched. The Budget remained tight lipped on the implementation of the Goods and Services Tax (GST), for instance, which is a key legislation impacting the logistics sector. No clarity on the RERA or the land acquisition bill was also a sentiment dampener. On the retail front, the industry was anticipating a relaxation in FDI norms for multi-brand retail, however, no clarification was provided on the same.
Keeping the larger picture in mind, however, the Budget has largely been a positive one and with certain key issues having been addressed, it is likely to boost the sentiment around the sector.
Author’s Note: Shrinivas Rao, a founding member of Vestian Global Workplace Services, is responsible for Vestian's growth and expansion in Asia Pacific. With over 23 years of experience in global real estate industry, Shrinivas has assisted various multinational corporations with portfolio planning, strategic consulting, expansion/ relocation and project delivery in order to achieve their real estate goals in key Asian markets.