The Populist Budget
Primarily, a pro-farmer budget, it has undermined the real-estate sector which is the second largest employment generator in the economy after agriculture. While there were no direct benefits to the real-estate sector from the budget, some measures announced may positively impact the sector.
The year 2017 was considered a watershed year for the real-estate sector due to the implementation of RERA and GST. Thus, Union Budget 2018-19 was expected to be progressive with affordable GST rates and incentives for the developers as well as the buyers.
The most important demand of the realty players from the budget was the grant of industry status to the real-estate sector. This would help the sector to access long-term financing at a lower cost thus, passing on the benefits to the consumers. As NAREDCO Chairman Rajeev Talwar had also stated that Industry status is something which is long overdue to the sector. Government should help developers in getting better access to funds and also incentivize homebuyers to create demand for the sector, which is facing a lot of challenges. The other major demand of rationalization of the GST rates and merging of stamp duty with the existing GST rates also did not find any mention. In fact, the direct impact of budget on the real-estate sector was negligible.
Incentives for Affordable Housing
In the budget, under the Prime Minister Awas Yojana (PMAY), the government has set aside ₹ 21,000 crore for building 5.1 million rural houses in FY19 and has created a dedicated Affordable Housing Fund in National Housing Bank. An interest subsidy will be provided to rural households that are not covered under PMAY. The government will give an interest subsidy of 3% for a 20-year loan component of up to ₹ 2 lakh. The government will provide ₹ 1.20 lakh as assistance to every unit in the plains and ₹ 75,000-1.30 lakh to those in hilly and difficult terrains.
Parveen Jain, Vice-Chairman NAREDCO said, “If the MIG-1 and MIG-2 categories too were brought under the affordable housing then they could avail the benefits and subsidies of the affordable housing that has been allocated the ‘Infrastructure Status’. Pradeep Jain, Founder Chairman, Parsvnath Developers Limited also felt, that though, various concessions towards setting up of an affordable housing fund under the PMAY will help boost the growth of ancillaries in the real-estate, the budget definitely should have been more comforting for middle income group for being able to create more disposable income.
Boost to Infrastructure
On the other hand, emphasising on urban development, the government has given a budgetary support of ₹ 5.97 lakh crore to the infrastructure sector and has also allocated ₹ 2 lakh crore towards the 99 shortlisted cities under the Smart Cities project. A special attention has been given to build toilets under Swachh Bharat Abhiyan and plans to construct over 2 crore toilets during next financial year.
Terming it a ‘Socialist Budget,’ Dr. Niranjan Hiranandani, President (National), NAREDCO has rated the Budget at 3 out of 5. “Finance Minister has managed to balance populist demands, the need to support economic growth and focus on fiscal discipline and reforms. It was also positive to see Suburban Railways in Mumbai find a mention in the budget, with ₹ 11,000 crore of outlay. Improved railway network and accessibility generally has a positive multiplier effect on real estate,” he added.
Concurring on the same, Amarjit Bakshi, Managing Director, Central Park stated, “Greater focus on developing the infrastructure layout by way of increased budget allocation for highways, acceleration of rural roads construction is a welcome move as it will drive greater socio- economic development around these regions.”
The construction materials industry seemed happier with the higher allocation for infrastructure. As Yadupati Singhania, CMD, JK Cement Ltd mentioned, “The focus of the government will likely remain on effective and timely execution of existing infrastructure projects. Besides this, the announcement of the Affordable Housing Fund will create an impetus for the housing sector, which contributes around 65% to India’s cement demand.”
Ujjwal Batria, Managing Director & Country CEO, Nuvoco Vistas Corp. Ltd. (formerly Lafarge India) also expressed similar opinion that with sizeable allocations to the rail and road sectors; it clearly recognizes the infrastructure sector as a growth driver. “Revisions in MSP, emphasis on rural MSME credit, and similar initiatives should lead to a significant improvement in rural incomes. A push in rural development, road and rail sectors, affordable housing and smart cities will all help the cement industry; as an increase in rural spending power should translate into more housing.
A growth of 7-8% by the third quarter of the next fiscal is something that the cement industry would eagerly await.”
The announcement of a dedicated affordable housing fund in the National Housing Bank (NHB) funded from priority sector lending shortfall and fully serviced bonds authorized by the Indian government could act as a catalyst in the government’s vision of “Housing for All by 2022”. The move to allow a variation of 5% between transaction value and circle rates for computation of capital gains will not impact transactions significantly in any of the metropolitan cities in India. The massive push for improvement in infrastructure, including significant capital expenditure for roads, railways and development of smaller airports too, will benefit the real-estate sector in the long run.
JC Sharma, VC & MD, SOBHA Ltd. summarizing the benefits said that the budget is positively focused on the rural sector development, agriculture, middle-class, Micro, Small and Medium Enterprises (MSME), senior citizens and weaker sections of the society. The affordable housing fund in the National Housing Bank, reduced GST rate of 8 percent for the segment and revised consideration of carpet area of 30 and 60 sq. m along with the proposal to have not making any adjustment in case where the circle rate vale does not exceed 5 percent of the consideration are some of the positives. He added, “A dividend distribution tax of 10 percent on equity-oriented mutual fund will encourage consumers to purchase home as an investment, especially if they do not already own any property. Furthermore, the reduction of taxation rate to 25 percent for corporates with a turnover of 250 crore will help small and medium real-estate players.”
Bijay Agarwal, Managing Director, Salarpuria Sattva Group agreed, “Relaxation of Circle rate, 5% variations, for immovable property will minimize litigations and disputes. However, we had anticipated changes in income tax slabs or GST slabs along with the provision of full industry status to the real estate sector.”
Bhavin Thakker, Country Manager – Tenant Representation, Savills India expects Budget 2018 to give the real estate sector a good boost as the the introduction of 10% tax on long term capital gains (LTCG) may alter their investment preference attracting more funds towards real-estate. Further, extension of ₹ 2000 crore to agricultural market and infrastructure fund will strengthen market connectivity, making real estate a preferred choice of investment not only in metros, but also in tier 2 and 3 cities preferred realty markets.
Terming it a Balanced Budget, Anuj Puri, Chairman, Anarock Property Consultants said, “The allocation of INR 5.97 lakh crore on infrastructure spending is good, though we need a massive push to ensure that the country’s infrastructure meets global standards. The regional air connectivity scheme to connect 56 unserved airports will promote business and office space demand in smaller cities, with a natural spinoff demand for housing on the back of job generation.”
While there were not many takeaways for the individual taxpayers, the Budget also did not seem to favour any particular sector.
Ramesh Nair, CEO & Country Head, JLL India said, “We see some strengthening of the affordable housing sector in the form of creation of the Affordable Housing Fund allowing better access to capital for related developments in urban and semi – urban areas. Additionally, the government’s continued focus on the ‘Bharatmala Project’ to develop 60,000 km, further reinforces the development of new locations. Additional avenues for the construction sector to consider include, new Industrial Corridors dedicated for Defense & Manufacturing as well as Incentives for creation of Agro-processing & Agri export promotion zones, Infrastructure construction pertaining to Roads, Power Stations, Housing, Airport Infrastructure, etc. to help revive construction activity.”
Anshul Jain, Country Head, Managing Director, Cushman & Wakefield India quoted, “The budget emphasis towards the 99 shortlisted cities under the Smart Cities project and the investment grade rating of 144 cities will improve the governance and financial independence of urban local bodies, and lead to infrastructure development of these cities.”
The Near Misses
The industry is disappointed with no changes in income tax slabs or GST slabs, translating to no extra benefit to new home buyers especially in metro markets. Rahul Singla, Director Mapsko Group, said “The budget is largely focused on uplift of the affordable houses in the country. For next year, we expect a budget which will open a plethora of opportunities for real-estate sector especially for ready-to-move-in which will help in the overall development of the country.”
Commenting that there isn’t much for developers or home buyers Ravindra Pai, MD, Century Real Estate said, “The unlocking of excess railway land will lead to lower property prices for housing in general. This will also help the builders in acquiring the excess land and plan for more affordable houses.”
Shishir Baijal, Chairman & Managing Director, Knight Frank India was of the view that 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.
Placing an architect’s point of view, Amol Prabhu, Partner, Shashi Prabhu & Associates commented, “I am hoping that the incentives to affordable housing fund will boost the development of Tier II and III cities. Green Initiative got a small favour in terms of the exemption of custom duty on import of solar tempered glass for manufacture of solar cells. Wish the budget had done some more in this area.”
Aditya Yamsanwar, Director, Partner and Strategist, Team ONE Architects commented, “There were expectations of support to this sector which was completely missed. Low cost housing and infrastructure got the attention and would hopefully create jobs and better infra might help better commercial hubs.”
M Murali, Managing Director, Shriram Properties expressed, ““The Budget 2018 is more of a welfare budget. It seems to focus on rural economy and agriculture with emphasis on generation of higher income for farmers. But there is still a lot to be done to achieve the objective of Housing For All. The real estate sector was expecting much more under affordable housing segment. Government may have to revisit this area.”
“The finance minister in my view has missed catering to the wants and needs of the middle class tax payers who actually were worst impacted during the recent demonization. No relief in service tax, VAT was a dampner for this class. The onus of filing TDS still remains on the end users for every property transaction which should have been the builder’s responsibility as many ignorant consumers miss deducting TDS and end up paying penalties. I was also hoping to see some positive use for metro city development, whereas the focus has been only on affordable housing which is truly unaffordable in the top 4 cities across the nation. Additional surcharge of 10 % for income between 50 lakhs to 99 lakhs will also hit upper middle class tax payers who will resort to tax evasion methods to avoid paying additional 10 %”, candidly stated Amit Wadhwani, MD Sai Estate Consultants.
Real estate had just received a major reduction from 12 per cent to 8% in GST on January 25, 2018. The Budget has added to this concession for housing by adopting a target of 31 lakh homes in 2018-19 to be built in urban areas and 51 lakh in rural areas. In order to do so, Government has planned a dedicated Affordable Housing Fund under NHB with priority sector lending shortfall contributing to this fund. Government assuming ownership of NHB from RBI is welcome as it translates into the focus of NHB shifting from regulation to development. Lastly, Government has addressed the anomaly under Section 43 CA to tax real estate transactions at their real value rather than the value arrived at by applying the artificially higher circle rate.
A Mixed Bag
The real-estate sector had been going through the pressure of structural reforms and policy changes. The government’s efforts to formalize and regularize the sector are welcomed. But, some relief for the sector was expected from the finance minister which went untouched. The realty players have convinced themselves with some steps taken towards the affordable housing segment. Jaxay Shah, President, CREDAI National explained, “More than the direct measures, it is the deeper economic logic of the Budget which is the major boost for housing and real estate. Such as the long term capital gains being subjected to tax at 10 per cent from now on, senior citizens and salaried employees receiving tax breaks and the public investment in infrastructure in the rural areas, agricultural marketing, smart cities and urban connectivity.”
Khushru Jijina, Managing Director, Piramal Finance & Piramal Housing Finance said “The government assuming ownership of NHB from RBI is positive as it would translate into the focus of NHB shifting from regulation to development. Overall, the strong economic impetus provided in the budget will ultimately boost housing and real estate. A push on infrastructure comprising public investment in the rural areas, agricultural marketing, urban connectivity, particularly Metros etc., will also multiply investment prospects for real estate sector.”
“The strengthening rural income and giving a push to affordable housing segment is a positive development. Although the real estate sector was expecting more in terms of getting industry status to the sector, the push towards “formal employment” and Infrastructure development will create a positive push for employment creation, which is the critical need of the hour, opined Ashish Sarin, CEO, Alpha Corp
Expressing his mixed reaction, Rohit Gera, Vice President CREDAI Pune Metro commented, “The finance minister has recognised the challenges around the anomaly between circle rates and actual consideration but the difference of 5% is inadequate. This should have been at least 10%. The introduction of long-term capital gains tax on equities however will be positive for real estate. The LTCG tax on equities therefore will push some investors towards real estate. Also, the benefit of reduced corporate tax rate of 25% for the companies with reported turnover of up to ₹ 250 crore will cover most real-estate developers across the country.”
On Crypto Currency
Another important aspect that surfaced during this budget was the step towards elimination of crypto currency and focus on digital transformations which are welcome social moves.
Founder and CEO of Cashaa, Kumar Gaurav elaborating on cryptocurrency being identified as illegal tender and government’s decision to explore BlockChain technology to strengthen digital economy said, “.I believe the government has failed to understand that cryptocurrencies are not about speculation and trading but there’s much more to it. Many cryptocurrencies like Cashaa & Ethereum have a strong use case especially for developing economies like India. The present stand might be little harsh just for the stake of counterfeiting scams and illegal trades but gradually it will slow down towards a better approach. Likewise, the use cases of Blockchain are not just limited to cryptocurrencies but a lot more than that can be achieved. It is just the beginning, moving of land records into blockchain could save million dollar scams and bribes. The system can be made more deterministic and optimized. Our very own digital identity Aadhar can be brought into blockchain which will open up a completely new shift in the technology world.”
The union budget 2018-19 seems like a wish list while stating the intentions and priorities of the government. It attempts to addresses the rural distress by building better infrastructure, hike in minimum support price (MSP), problems related to irrigation facilities as well as announcing the “world’s largest government funded healthcare program.” But whether the government has enough resources to action these plans, we will have to wait and watch. The real-estate sector by and large was ignored and may just see some trickle down positive impact of emphasis on rural development and investment in infrastructure.