Budget 2018 Real Estate Expectations(Gaine&Loss): Insight
The union budget 2018-19 evoked a mixed reaction from the real estate sector. It predominantly focused on the revitalizing the rural economy, agriculture, health and infrastructure sectors while the real estate did not receive much, as was expected from the budget. It received some gains while some expectations were not met.
As, after some pathbreaking reforms in 2017, the real estate sector was hoping for a revival, but felt dejected with a lack of emphasis on mainstream real estate sector reforms and demands.
Let's look at the gain and loss aspects of the budget for real estate sector
Gain: Push to asset classes
In Budget 2018, benefits for education sectors & health-care centres, such as ? 1 lakh crore for research, 1.5 lakh health-care centres, 24 new medical colleges and increased allocation for data centres, etc. were announced.
As the market is recovering at a fairly slow pace, analysts observe that investors will seek to place their money in alternative areas such as student housing, hospitality and senior living instead of investing abroad. Although it is a known fact that high income earning Indians, prefer to buy houses in the United Kingdom (London) and in the United Arab Emirates (Dubai), where affordability levels are currently better than India.
Experts view that with this new announcement, investing in Indian asset classes will offer better returns.
Loss: Infrastructure Status
Last year, the industry faced - the demonetization, the RERA and the GST. The logistics and affordable housing sectors received the label 'infrastructure' tag recently in the budget, but the real estate sector is yet to receive it. As any sector receiving 'infrastructure' status, directly helps the industry to get back on track (after reforms).
Experts expressed that, if it had been given to the real estate sector, it would have encouraged private players considerably to invest in real estate projects as there is a rise in demand and scope of earning profits from it. Also, there would be increased real estate activity, not only in metropolises and larger cities but also in Tier II / Tier III cities. It would have been a major structural reform that could have boosted GDP, increased employment opportunities, reduced the cost of home development and purchase, significantly.
Gain: Empowerment of Urban Bodies
Municipalities will be able to take care of their finances, thanks to the government taking steps, to create smart cities, ensuring better infrastructure facilities and initiatives like Swachh Bharat Abhiyan.
Taking the cognisance of the growing municipal bond market, the Budget announced - 142 cities are classified as 'investment grade'. This will help in strengthening the financial stability of the cities. Experts say that by giving this, ease of living infrastructure programs of the government would seek the participation of private companies and relaxation in the investment grade to BBB-rated bonds will help more companies to borrow at cheaper rates.
Loss: Exemption for REIT
An important reform of the sector, the Real Estate Investment Trust (REIT), did not win this time. Levying stamp duty at the time of an asset transfer remains to be one of the key issues to be resolved. As per the present regulations, a real estate entity has to transfer the asset, which is part of the offering to REIT, before the opening of the issue for public subscription.
Therefore, entities will have to pay the stamp duty and obtain capital gains during the transfer of ownership, which affects the financial feasibility of retail investors. Therefore, the removal of stamp duty while transferring the land, is required urgently. This would make REITs a much more practical investment instrument and would encourage developers further.
Gain: Focus on 'Affordability'
The analysts believe that the incentives granted to the affordable housing segment have enough potential to revive the country's overall realty sector. Last year was a great year for the segment and recently announced Affordable Housing Fund strengthens it.
A significant GST reduction from 12% to 8% was given to realty sector and the government's recent announcement to build 51 lakh houses in rural areas and 37 lakh urban houses in 2018-19 is an additional boost. "The dedicated Fund will be created within the framework of the National Housing Bank (NHB) and the government assuming possession of the NHB from RBI is a welcome move", says Jaxay Shah, president of CREDAI National. Other possible avenues for the sector include the creation of industrial corridors dedicated to the defence manufacturing, incentives for the creation of agro-processing and agri-export promotion zones, etc.
Loss: Single Window Clearance
Currently, the major issue affecting the builders and developers is the lack of a single window clearance system, which is not addressed in the recent budget 2018. Commercial and residential projects suffer delays and increased costs due to a large number of approvals required from the municipality and other authorities, including environmental, fire and water departments.
Experts state that with the implementation of RERA, a digital technology enabled single window system is needed more than ever. Despite the introduction of several realty-centric policies by the government, a functional single window approval mechanism system is much-needed demand at present. This move will help in reducing costs that will further result in faster delivery of homes and improving builders' credibility.