While the Union Budget 2018-2019 predominantly focussed on revitalising the rural economy, healthcare, agriculture and infrastructure sectors, experts in the real estate industry had a few gains and quite a few unmet expectations. “Throughout 2017, the focus was on affordable housing, which was also evident in the Credit Linked Subsidy Scheme (CLSS) and the last Goods & Services Tax (GST) Council meet where the effective rate was lowered by four points. However, there has been a silence in the budget on stimulating mainstream real estate demand. The sector, grappling with the reforms-driven new order, has been bereft of any meaningful interventions that could have been achieved through the budget,” says Shishir Baijal, Chairman and Managing Director, Knight Frank India.
We take a look at the positives and negatives of the Budget:
HIT: Push to asset classes
Since the market is recovering at a rather slow pace, experts suggest investors look at putting their money in alternative areas such as student housing, senior living and hospitality, rather than invest abroad.
The recent Budget announced benefits for the healthcare and education segments such as: ₹1 lakh crore for research, 24 new medical colleges, 1.5 lakh healthcare centres and increased allocation for data centres, to name a few.
While it’s a known fact that Indians prefer buying homes in the UK (London) and UAE (Dubai), where affordability levels are currently better than India, A. Shankar, National Director, JLL, says with the new announcement, investing in Indian asset classes will offer better returns. “They currently offer returns in the range of 12-15% in an otherwise low-yielding core real estate market. More so, the incentive so offered could go a long way in bridging the demand-supply gap that current exists within alternative realty spaces,” he says.
MISS: Infrastructure status
Post the many reforms the industry had to face last year — demonetisation, RERA and GST — experts were looking forward to this long-awaited announcement the most. While the logistics and affordable housing sectors received the ‘infrastructure’ tag recently, the realty sector is yet to receive it. But why is it so important? Given the Government’s ambitious vision of ‘Housing for all by 2022’, it has a very direct stake in helping the industry get back on track. Santhosh Kumar, Vice Chairman, Anarock Property Consultants says with rising demand and improving profitability, the tag will encourage private players. There would be increased real estate activity not only in the metros and larger cities but also in Tier II/Tier III cities.
Having said that, instead of providing the infrastructure tag, the Budget gave a minor boost to the Housing for All scheme. “While this is commendable, it is an exceedingly slow and cautious approach. An infrastructure status would have been a major structural reform that could have boosted the GDP, increased employment opportunities, lowered the cost of home development and purchase,” adds Kumar.
HIT: Empowering urban bodies
In a first, municipalities will now take charge of their finances thanks to the government taking steps towards creating smart cities, ensuring infrastructure facilities and initiatives such as Swachh Bharat Abhiyan.
The municipal bond market is growing and the recent Budget announcement that 142 cities have been rated as ‘investment grade’, will strengthen the financial stability of cities. “Given that smart cities and ease of living infrastructure programmes of the government would seek involvement from private companies, the relaxation in the investment grade to BBB rated bonds will help more companies borrow cheaper,” says Shankar.
The government should now offer grants to municipal authorities to incentivise the formation of an attractive and conducive municipal bond market. For the initial few years until certain level of market depth, investors could be given tax rebates or other incentives. Current challenges include: a conservative approach of insurance and pension firms to invest in municipal bonds, limited credit enhancements, lack of incentives for municipal bodies, preponderance of institutional finance and absence of any particular requisites to issue bonds.
MISS: Exemption for REIT
A much-talked about reform for the sector, the Real Estate Investment Trust (REIT), did not gain this time. Levying stamp duty at the time of an asset transfer continues to be one of the key issues. As per current regulations, a real estate entity has to transfer the asset, which is part of the offering to REIT, before the issue opens for public subscription.
Therefore, the entities will have to pay stamp duty and realise capital gains during transfer of ownership which will impact its financial feasibility for retail investors.
Joe Verghese, Managing Director, Colliers International India, says despite government and regulators clearing the decks, the first REIT hasn’t launched yet. “Removal of stamp duty while transferring the land would have made REITs a much more practical investment instrument and encourage developers,” he says.
HIT: Focus on affordable
Most experts are of the opinion that only the incentives granted to the affordable housing segment have the potential to revive the overall sector in the country. Last year was a great year for the segment and the recently-announced Affordable Housing Fund further strengthens it.
The realty sector received a major reduction in GST — from 12% per cent to 8% — and the government’s recent announcement to construct 51 lakh homes in rural areas and 37 lakh urban houses in 2018-19 is an additional boost. “The dedicated Fund will be set up under the National Housing Bank (NHB) and the government assuming ownership of NHB from the RBI is a welcome move, says Jaxay Shah, President, CREDAI National. Other possible avenues for the sector include: setting up industrial corridors dedicated to defence manufacturing, incentives for creating agro-processing and agri-export promotion zones, etc.
MISS: Single window clearance
One of the biggest issues to be affecting developers, the lack of a single window clearance system, remains unaddressed in the recent Budget. Projects — residential and commercial — suffer delays and increase in costs due to the slew of approvals required from municipality and other authorities including environmental, fire and water departments.
With the implementation of RERA, a technology-enabled single-window system is needed more than ever, points out Verghese. He says that despite the many realty-centric policy introductions by the government, a functional single-window approval mechanism is still a long-standing demand. Experts say this move will not only reduce costs, but will result in the faster delivery of homes and improve the credibility of builders.