– 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,
Also, the income tax benefits to individuals are insufficient to provide the demand side push to the sector.
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.
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