– Many reckon that the Union budget before the election year is almost always populist in nature, with an eye focusing towards the general elections of 2019, the current government is all set to introduce the highly expected fiscal budget which will be floored in the parliament on 1 February, 2018. The upcoming budget will be watched closely as it will be the debut budget after the biggest tax reform in the history of the country Goods and Services Tax (GST) implementation.
Whilst current government has done a lot for Indian real estate industry, it needs a further boost and focus will be on agendas like infrastructure, SEZs, affordable housing, warehousing and logistics, REITs, real estate tribunals, etc.
1. Money power for infrastructure’s kitty:
Moving ahead from the previous year’s multiple real estate-centric announcements, the real estate fraternity now seeks the government to dole out bigger financing schemes in its budget for the development of the highways and road construction projects, uplifting the air and coastal shipping infrastructure, also catering to the necessary hinterland connectivity. We expect the upcoming 2018-19 budget to actively talk about improving infrastructure across the country while strengthening the inter-state connectivity. The important economic corridors should be up in the priority list to help develop many regions and therefore injecting growth in the smaller cities for improved real estate activities subsequently, enhancing job creation.
2. SEZs to be rejuvenated:
Real estate industry expects big-ticket announcements with regards to the Special Economic Zones (SEZs). Relaxation on Minimum Alternative Tax (MAT), re-incentivising the developers to develop new projects, slashing the minimum required SEZ size in smaller and special states are to be expected. During 2016’s budget, the SEZ units and developers were permitted to forge ahead the credits till 15 years from the existing 10 years. However, there are strong indications, this year, MAT will either be scrapped or lowered in line with the concession given to International Financial Services Centres (IFSCs). We also expect a reduction in the minimum area needed to 4 hectares from 25 hectares for the establishment of sector-specific SEZs such as biotechnology, non-conventional energy equipment, and services in smaller states and the Union Territories. A case can be made for the extension of sunset clause on SEZs up to 2023 from the present 2020, which will provide the direct tax benefits stated to them under the SEZ Act as the early implementation may further dent the non-investor friendly image of SEZs. As a result, many developers have de-notification of approved SEZs. Therefore, implementation of these will give the SEZ developers and tenants a sigh of relief.
3. Formulate REITs structure to be a lucrative investment option:
With the advent of the first infrastructure investment trusts (InVITs) in 2017, the Indian market now anticipates the real estate developers to ultimately come up with real estate investment trusts (REITs). Although RBI has given a go-ahead to REITs, this potent instrument of investment in the real estate industry have not been able to materialize yet.
Despite having characteristics like debt instruments, that offer stable returns, real estate investment trusts being derived from the real estate assets carries a bigger element of volatility, which makes the investment similar to equity. In order to lower the risk element and make investing in the REITs more lucrative, there is a dire need to reduce the long-term capital gains from the transfer of the property by the owner to REIT. Also, the threshold period of 36 months for REIT units to qualify as long-term capital asset needs to be reduced to 12 months. This would make REITs a much more practical investment instrument in the eyes the investors, and hence motivate the developers to surface them in the market.
4. Capturing the dream of ‘Housing for All by 2022’:
Moving forward from the yesteryear’s key announcement of granting the infrastructure status to affordable housing, all eyes are set on the further strengthening policy announcements from the government’s side in order to give fillip to more private developers participation in the national target of achieving ‘housing for all by 2022’. We suggest the government to introduce more positive moves in the field of public-private partnership models for the affordable housing segment. Also, we expect new announcements for the home buyers in the form of additional interest deductions from the income tax and benefit of the waiver for first time home buyers should be extended with loans sanctioned beyond 31 March, 2017. The impetus in the form of tax benefits may help them capture their dream and also fulfill the government's affordable housing goals.
5. Rising expectations of logistics sector:
“The implementation of GST in 2017 has made the manufacturing companies to consolidate their warehouses at a particular location. Any introduction of new support policies will act as a catalyst in this process. In order to facilitate the willingness of the companies to set up strategic transport and warehousing hubs, the government can introduce an axillary infrastructure initiative”, says Sanjay Chatrath, Executive Director, NCR at Colliers International India. Major allotment of funds to develop high-density freight corridors and increase the numbers of logistics parks which functions to improve freight aggregation and distribution, multimodal freight movement, storage, and warehousing while enhancing the freight corridors on railways, multi-modal transport networks. An increased monetary allocation to build effective connectors and planning network of dedicated corridors will improve productivity and reduce logistics transport cost. Focus on coastal shipping, sea and air logistics corridors will eventually reduce the overall logistics cost. With the motive to increase the logistics-use via increased air, road and sea connectivity, the government must allocate adequate resources in its budgetary announcements.
With the budget expected to be floored on 1 February, 2018, we expect much favoring policy and fiscal announcements for the real estate sector at large.
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