How infrastructure status will change the reality for real estate

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The Union Budget 2017-18 was
announced with the theme of Transform, Energise and Clean India (TEC) was largely geared towards
rural growth, infrastructure, and poverty alleviation, with a huge impetus to
affordable housing. The thrust on affordable housing renews government’s vision of ‘Housing
for All by 2022’, giving a cheer for the housing segment.
After a wait of several years, the government has finally awarded infrastructure
status to the largely-neglected affordable housing, which is encouraging for
developers. Infrastructure status will ensure easier access to institutional
credit and help in reducing developers’ cost of borrowing for affordable
projects.
According infrastructure status will further simplify approval process for
affordable projects, create clear guidelines and increase transparency in the
segment. Such a market, which will further be made
accountable through the Real Estate Regulatory Authority
(RERA), could attract debt and pension funds to invest in the affordable housing
segment.
Further, the government has tweaked the definition of Affordable Housing
projects under the scheme for 100% deduction of profits from tax of an
undertaking. Earlier, flats up to built-up area of 30 sq. metres in four metro
cities and up to 60 sq. metres in other
cities were to be considered under the scheme, which has now been changed to
‘carpet area’ and the 30 sq.m. limit now applies to only within the municipal
corporation limits of the four major metros.
Moreover, this time period has extended from three years of approval to five
years. We expect that these moves will definitely aid supply in the affordable
segment by ensuring that a greater number of projects will come under the ambit
of the scheme, which has remained largely under-penetrated till now, despite
immense pent-up demand. For instance, households earning up to Rs 200,000 per
annum and above poverty line itself accounts for almost half of the total demand
for housing between 2017 and 2020.
In order to cater to the supply, the government has targeted to build 1 crore
houses by 2019 for homeless and those living in kuchha houses. Moreover, the
industry will also be enthused by the Finance Minister’s allocation of Rs 23,000
crore towards Pradhan Mantri Awas Yojana, which is almost a 53% increase from that of last year.
In a major relief to housing developers, the Finance Minister has changed the
time period for calculation of notional rental on unsold stock held by
developers for tax purposes, which will now kick in only one year after
completion.
Housing developers have been suffering from major cash flow problems in the past couple of years as there is
substantially high unsold stock in most of the cities due to the suppressed
housing demand. The demonetization has compounded their problems with a further
slowdown in sales. This measure provides them with some relief and the
opportunity to focus in pushing the sales of their stock
For investors, the announcement regarding a reduction in holding period from
gains from immovable property for long term capital gains tax from 3 years to 2
years will result in lower tax liability and help to boost individual
investments in the sector.
Another matter for cheer was for joint development agreement signed for
development of property, the liability to pay capital gain tax will arise in the
year the project is completed. This will help in creating more positive demand
for land assets for future developments.
The focus on transportation sector as a whole is a very positive and far sighted
development. Transportation, including rail, roads, shipping, which has received
a provision of Rs 2,41,387 crore 2017-18 along with specific announcements of
creating over 3500 km of rail network and 1.40 lakh km of road network will
ensure greater accessibility thereby creating more nodes of economic
development. Further the proposal of having a METRO policy is a welcomed move.
These will help in de- congesting the cities and create potential urban centres
for future development
Scrapping of the Foreign Investment Promotion Board (FIPB) would further pave
the path for foreign companies to invest in India. At a time when the government
is pursuing its ‘Make in India’ mission and further liberalizing FDI norms
across sectors, this move will go a long way in reducing bottlenecks for foreign
investors from certain sectors such as defence, aviation, banking in the
country.
Some of the aspects that the Union Budget missed, and those that could
have created a better impact on the real estate sector include, lack of
provisions for increasing the tax deduction for interest paid on housing loans
which could have been a welcomed relief and a morale booster. Further, as many
from the real estate sector had commented before the budget, some additional
benefits for first time home buyers could have been included to provide the
additional impetus.
The Budget also did not address crucial aspects like SEZ policy or provide any
further tax relief for SEZ. This is critical as globally Free Trade and low tax
zones have a significance in creating the right environment for economic growth..
Over all this is an extremely sensible budget that focusses on promoting long
term and sustainable growth even as the country and its economy faces many headwinds from
global issues such as BREXIT, US politics, increasing oil
prices and general uncertainty.”

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