The budget 2014 has made some very promising announcements
which can give much needed boost to the economy in general and real estate
sector in particular.
Let us study the announcement relating to real estate and see how they
will impact the industry and the home buyers.
Foreign Direct Investment in Real Estate Projects
In order to encourage foreign investment, particularly for development
of Smart Cities, the government has liberalized FDI norms for Real Estate
projects. The requirement of minimum built up area and capital conditions
for FDI is being reduced from 50,000 square metres to 20,000 square metres
and from USD 10 million to USD 5 million respectively.
This will attract more foreign capital and provide liquidity to the fund
starved Real Estate sector.
Affordable Housing
In pursuit of its objective of providing housing to all by the 2022, the
government has given Affordable Housing a major thrust in the Budget. The
government has allocated a sum of 4,000 crores for NHB with a view to
increase the flow of cheaper credit for affordable housing to the urban
poor/EWS/LIG segment.
However, what could be a major game changer is the announcement that
projects which commit at least 30 per cent of the total project cost for
low cost affordable housing will be completely exempted from minimum built
up area and capitalisation requirements for FDI discussed above.
The above measures will facilitate availability of funds both for home
buyers as well as developers.
However, in order to make housing really affordable, the cost of
construction has to come down. For this, apart from cheaper funds, two more
things are required – cheaper land and faster construction .In order
to achieve former, the government may be required to make changes in the
Land Acquisition Act. Whereas the later will require, speeding up the
approval process (single window clearance) and better project execution
technology. The government will have to quickly take necessary action to
address the above issues if it wants to make its dream of providing
affordable housing to all a reality.
Slum Development
The New Companies Act makes it mandatory for profit making companies in
India to
spend 2% of its profit on Corporate Social Responsibility (CSR)
activity.
By including slum development in the list of CRS activities, the Budget
has given a major boost to housing sector. Large corporate realty players,
especially in Mumbai, like
Mahindra, Godrej, Tata etc. who so far have
stayed away for Slum Redevelopment projects, may now get active in this
area.
Income Tax Concession
The Individual tax payer also has lot to cheer from the budget
announcements. The limit for deduction under section 80 C for specified
investments/payments which includes payment of
Housing loan instalments
(principal) has been increased from 1 lac to 1.50 lacs. Further,
deduction under section 24 for payment of interest
on self occupied
house has also increased from 1.50 lacs to 2 lacs. These are over and
above the increase in
overall income tax exemption limit from 2 lacs to
2.50 lacs. Thus an individual, paying housing loan instalments and
falling in the highest slab could end up
saving tax of nearly rupees
fifty thousand. Also, potential home buyer will be left with more
disposable income which will enhance his borrowing capacity for purchasing
home.
REITS
While the talks of launching REITS in India have been going on for many
years, the same could not take off for variety of reasons, the chief among
them being the issue of double taxation.
REITS is similar in structure to Mutual Fund in the sense that it invest
(in Real Estate) on behalf of investors and then distributes income to
them. Hitherto, it was subject to double taxation first when it earns the
income and again then again the distributed income was taxed in the hands
of recipient. By giving pass through status to REITS the government has
done away with the double taxation.
There is no doubt that introduction of REITS can provide liquidity to
the funds starved Real Estate Industry. However this is just one step in
the right direction and there are still other regulatory (SEBI, FEMA etc)
as well as market related issues to be sorted out before REITS can be
successfully introduced India.
Urbanization, Transportation and Infrastructure development
Apart from above, the government has announced major initiatives in the
areas of urbanization, transportation and other infrastructure development
which will give a tremendous boost to the development of Real Estate in the
days to come. Some of these are :
- Provision of Rs 7060 crs. for developing ‘one hundred Smart
Cities’, as satellite towns of larger cities and by modernizing the
existing mid-sized cities
- Allocation of Rs. 100 crs. For Metro Projects in Ahmedabad and
Luknow
- Allocation to Urban Renewal (infra development) increased from 5,000
crs. to 50,000 crs.
- Boost to road construction - Investment of Rs. 37,880 crs. in NHAI for
construction of National and State Highways. 8500 kms to be completed this
year.
- Expressways to be set up along new industrial corridors –Rs. 500
crs. for project preparation
- Setting up new airports, inland navigation system, SEZs etc. through
Public Private Participation
As can be seen from above the budget has made some very bold
announcements, on the real estate and infrastructure front to revive the
economy. However, these will have to be backed by further concrete actions
on the ground level to ensure delivery.
Source:
Easy2ownEstate
