Towards the right balance

From a real estate sector standpoint, almost all segments are expected to benefit from the Union Budget proposals, says Shrinivas Rao

HYDERABAD: TELANGANA: 29/02/2016: The fast spreading concrete jungle in and around the historic Golconda Fort might well tempt the historians to believe whether it would be difficult to spot the great monument in the days to come given the massive construction works in and around Hyderabad, as Finance Minister Arun Jaitley announced, No Service Tax for houses built under 60 square metres, and People with income less than Rs 5 lakh to get deduction of Rs 5,000, up from Rs 2,000 last year. HRA deduction up from Rs. 24,000 to Rs. 60,000 p.a. presents his third Union Budget in the Parliament House, New Delhi on February 29, 2016. Photo: G. Ramakrishna

The Union Budget 2016-17 has 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 expectation of the industry vis-a-vis the budget announcement, here are the key provisions:

1. 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.

2. 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 Budget; 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 emphasises 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.

3. Promotion of ease of doing business in real estate sector: No specific proposal was laid out for the sector to address long approval processes and multiplicity of authorities resulting in project delays.

4. 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.

5. Promotion of affordable housing: 100% service tax exemption for construction of affordable housing under any scheme of the Central or State Government, including PPP schemes. 100% deduction on profits for undertaking building housing upto 30 sq.m for top four metros and upto 60 sq.m 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.

HRA support

Additionally, all those who do not own a house and do not get HRA benefit from the 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.

6. 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.

7. Home loan interest rates and individual tax slabs: While nothing in particular was announced on home loan interest rates, 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 up to Rs. 35 lakh for house value not exceeding Rs. 50 lakh.

8. 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 given.

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.

Keeping the larger picture in mind, however, the Budget has been a positive one and with certain key issues having been addressed, it is likely to boost the sentiment around the real estate sector.

(The author is CEO-Asia Pacific, Vestian)