Gurgaon, February, 02, 2018 – While the general expectations were tilted towards a more populist Budget, the mantra of Union Budget 2018-19 was to provide an impetus to economic growth through extensive capital outlay in agriculture, infrastructure, manufacturing, education and healthcare sectors; and to ensure credit availability for businesses. As per Colliers Research, the Budget was rightly focused on improving basic infrastructure and strengthen capacity building. However, it provides very little push in the short term to the real estate sector, other than a boost to the affordable housing segment. Also, the income tax benefits to individuals are insufficient to provide the demand side push to the sector.

“Making a significant departure from the previous 3 years, the government has provided no direct stimulus for the Real Estate Industry in Budget 2018. It was completely focused on providing a greater impetus for growth to rural India. In simple terms, this budget is a reversal of the last 3 year's strategy of just addressing short term pains of the industry to investing for long term gains for the country", says Joe Verghese, Managing Director, Colliers International India.

Some of the key highlights of the budget that are likely to influence the real estate sector are as follows:

1.  1. Agriculture and food processing are major beneficiaries; direct push to cold storage warehousing and logistics sector

The budget proposed liberalisation of export of agri-commodities to realise the actual potential of INR 6.37 lakh crores (USD 100 billion) as against current exports of INR 1.91 lakh crores (USD 30 billion). As per Colliers Research, setting up of food parks and additional focus towards food processing industry seeks to address the nation’s food wastage concerns. Growth in agro-based exports should also help uplift the rural economy and affordable housing. We believe, the focus on agriculture and food processing industries should increase the investments in warehousing, cold storage facilities across agricultural and industrial belts.

2. Dedicated fund to affordable housing sector creates optimism on the supply side; 10 million homes to be built by 2019 for the homeless under Pradhan Mantri Awas Yojna (PMAY)

The establishment of dedicated Affordable Housing Fund (AHF) will further support the objective of achieving Modi’s government mission of ‘Housing for All by 2022’. The profit-linked exemption along with the infrastructure status for affordable housing has started pushing developers to undertake more affordable housing projects, thus increasing private player’s participation in the sector, in our opinion. We expect the increased infrastructure investments should address the concerns on inadequate infrastructure in peripheral and rural areas and high cost of land in prime areas being major challenges for the affordable housing sector.

3. World’s largest National Health Protection Scheme (NHPS) to cover over 10 crore poor families

As per Colliers Research, it is a steady step towards the universal health coverage, in line with the schemes present in other developed nations. These schemes will not only boost the healthcare industry but should be a vital catalyst in increasing the much-needed public and private investment towards the healthcare-related real estate developments across the nation, especially in Tier-II and Tier III cities.

4. No adjustments on transactions where circle rate values do not exceed 5% of the consideration; limited impact on real estate transactions

To minimize hardship in real estate transactions, the budget proposed that no adjustment shall be made in a case where the circle rate value does not exceed 5% of the consideration. In our opinion, it will provide a small benefit and will not really impact property markets/prices. The ideal way of removing this anomaly is to have a market mechanism to recalibrate the circle rate system in such a way that the difference between the circle rate and the average market rate over 6 months is negligible.

5. Funds on Smart cities and establishment of Schools of Planning and Architecture (SPA); futuristic path towards planned developments in Indian cities

An outlay of INR 2.04 lakh crore (USD 32.6 billion) has been allocated for 99 smart cities to aid in the implementation of various projects. As per Colliers Research, these initiatives are likely to uplift Indian cities to witness more planned developments with adequate infrastructure in upcoming years. With an overlay of the smart systems on infrastructure and planning, the smart cities will greatly benefit from a new ecosystem on the thrust of using technology as the backbone.

6. Promised reform measures with respect to stamp duty regime on financial securities transactions; lack of clarity on standardisation of stamp duty for immovable properties transactions

There is a long-standing demand from the real estate sector to rationalise the stamp duty on immovable property transactions across all the states. Currently, the stamp duty ranges from 3% to 8% in various stakes. Real Estate Investment Trust (REITs) are also looking for exemption from stamp duty as it impacts the financial feasibility of return, while transferring assets to a REIT investment vehicle. We expect the revision of stamp duty in consultation with states to be a positive step and should encourage transparency and standardization of property registration costs.

7. Revitalization of heritage Indian cities under Heritage City Development and Augmentation Yojana (HRIDAY) scheme; establishment of iconic tourist destinations to boost Retail, Hospitality and F&B Sector

The budget revealed that the government will be investing money in the holistic development of the top 10 prominent heritage cities in India to make them as an Iconic tourist destination. As per Colliers Research, development of the tourist-friendly cities in India would impact both social and physical infrastructure in prime areas, which coupled up with the boost in economic activities will pave the path for the new real estate assets in retail, hospitality and food and beverage (F&B) sector.

8. Infrastructure uplift; 600 railway stations to be redeveloped, airport capacity to expand more than five times and expansion of road connectivity on the cards

As per Colliers Research, the increased investments in the redevelopment of railway stations and airports will act as a major hotspot for commercial activities, eventually mushrooming commercial, retail and hospitality related real estate projects around them. Improvement of national highway roads and inter-state connectivity are moves that will further strengthen the real estate activities related to logistics industry.  

9. 10% Tax on Long-Term Capital Gains (LTCG) from stocks, equity mutual funds; accelerate focus shift to other investment assets like Real Estate

In our opinion, this proposal to levy long term capital gains tax on equities at the rate of 10% is a negative move as LTCG exemption was an attraction for new investors into equity/equity mutual funds and brought funds from other low paying avenues. The change in capital gains tax for equity could accelerate the shift of preference from equity to other investment assets like real estate. This would be a reversal of the trend we have seen in the last 5 years.

10. Tax benefit of 25% extended to MSMEs; likely to benefit real estate indirectly by promoting job growth

As a major boost to companies, the budget extended the reduced corporate tax rate of 25% for companies with turnover of up to INR 250 crores (USD 0.04 billion). The package for MSME along with an allocation of INR 3794 crore (USD 0.61 billion) for credit support, capital and interest subsidy, and innovations in the sector will provide huge relief to MSMEs, in this post demonetization and GST scenario. This should boost economic growth and job creation which would enhance focus on the real estate sector. However, the announcement should create dissatisfaction among big corporates that were hoping that the corporate tax cut will be across the board.

About Colliers International Group Inc.

Colliers International Group Inc. (NASDAQ and TSX: CIGI) is an industry-leading global real estate services company with 15,000 skilled professionals operating in 68 countries. With an enterprising culture and significant employee ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include strategic advice and execution for property sales, leasing and finance; global corporate solutions; property, facility and project management; workplace solutions; appraisal, valuation and tax consulting; customised research; and thought leadership consulting. 

Colliers professionals think differently, share great ideas and offer thoughtful and innovative advice that help clients accelerate their success. Colliers has been ranked among the top 100 global outsourcing firms by the International Association of Outsourcing Professionals for 12 consecutive years, more than any other real estate services firm.

 

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