We did not expect this budget to be a game-changer. The realities of the Indian economic situation need to viewed in context with the factors that drive it, not least of all the global economic situation. There is no escaping the fact that the business which comes to India from the European Union and the US has a trickle-down effect on key economic drivers in India, and the Finance Ministry does not control these factors. The Union Budget can only hope to address factors within its control.
This was a moderately encouraging Budget in general, but tepid for the Indian real estate sector.
- · On the positive side, it provided a boost to affordable housing with an additional interest benefit of Rs. 1 lakh on first-time home loans up to Rs. 25 lakh. However, this provision is only for the first year and with a carry-forward benefit of the unutilized deduction to the second year. This will help boost housing sales in tier 2 and 3 cities and peripheral areas and distant suburbs of metros, but not within the metros, where housing is more targeted towards the mid and upper income segments.
- · The setting up of the Urban Housing Fund by the NHB with an allocation of Rs. 2000 crore will infuse liquidity for urban housing, thereby boosting demand.
- · The Budget’s focus on education and job creation is doubtlessly commendable. Job creation is a primary driver for real estate in India, and there will be more schools that could be set up. Education is now a well-defined real estate segment in India and will receive a boost in the mid-to-long term.
- · The additional allocation of Rs. 14873 crore to JNNURM towards public road transport will help make lagging real estate locations more viable in the long term.
- · The TDS of 1% to be charged on the transfer of immovable property is an obvious move to curb speculation and bring about improved reporting and accountability in high-value immovable property transactions. Considering that the TDS is to be charged on the gross transaction value rather than net gains, sellers will have a cash-flow impact in situations where the sales are at a loss or at zero/negligible gains.
- · The rate of abatement on homes and flats of above 2000 square feet or costing Rs. 1 crore and above has been reduced from 75% to 70%. Effectively, this translates into an increase in service tax outflow, which means that luxury housing will now become even more expensive.
There has been no proposal on certain key expectations from the real estate sector. These include implementation of the Real Estate regulator and the Land Acquisition Act. All said and done, Indian real estate will continue to struggle with its larger hurdles. While the affordable housing category has been rightly given due attention, aspects relating to improved transparency and corporate governance within the sector have been largely ignored.
That said, the Budget has shown commitment to improving communication on taxation and regulatory policies. This should give more comfort to offshore real estate investors who have been bogged down by the political inertia and therefore unsure of India as an investment destination in the recent past.