It is practically impossible to live up to the expectations of one and all. It's no different when it comes to budget. What do the veterans of the industry have to say about Budget 2020? Have their budget expectation been met? Are they disappointed? Do they see green shoots of recovery?
Betting big on revival of its fortune, the Indian real estate sector feels it has largely been left high and dry with no major budget announcement. On the other hand infra majors are happy with the government's continued focus on infrastructure. With increased budget spending on health, education, tourism & hospitality, agriculture, and impetus to manufacturing, the budget has focused on the long-term goals and industry players opine that the budget is a balanced one.
Realty players say that no sector-specific measures were announced for real estate in the budget presented by Finance Minister Nirmala Sitharaman; they were expecting bolder steps from the government to revive the ailing sector such as providing more liquidity for the sector, onetime restructuring of loans, and tax deductions on home loans to give impetus to buyer sentiment. It's not that the budget is devoid of positives for the sector. Affordable housing continues to be the government’s focal point for real estate, also infra development - which has a major multiplier effect on not just the overall economy but on the real estate market as well - remains on top of the government’s agenda of propelling economic growth. It's just that the real estate sector needed more.
“Marathon Budget 2020 has set a positively direction tone, but failed to announce much-awaited economic stimulus to fuel kick-start of the $5-trillion economy. Labour-intensive real estate sector, which had pegged hope on additional liquidity infusion, tax reforms and rental housing, were overlooked in the Budget,” said Niranjan Hiranandani, president NAREDCO. Industry insiders point to a few aspects that the government could have addressed in the budget, viz granting of industry status to the overall real estate sector, implementation of single window clearance and revival of Input Tax Credit for housing sector to provide relief to developers and home buyers, where-in homes could have been made available at lower cost. A key expectation was the restoration of income tax benefit on a second home which would have benefitted home buyers in a big way and also stimulated the real estate sector, this too was not addressed.
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Realty Check
"From the real estate sector point of view, it had been disappointing. Overall, we would have liked to see a few of the several long-standing needs of the real estate sector be addressed such as granting of the industry status, one-time rollover, tax on unsold inventory, tax to individual investor for notional income on second or third home, offset of loan interest from income, developer subvention and RERA as single body for customer grievances. After witnessing the slew of supportive initiatives last year, we had high expectations from the first budget of the decade to be able to bring the real estate sector back on the path of sustainable growth,” said Sanjay Dutt, MD & CEO, Tata Realty and Infrastructure. Dutt is not alone, Ashok Tyagi, Group CFO, DLF is equally disappointed. "We were hoping that from a stressed developer standpoint, a window of restructuring will be announced like it was for the MSME sector earlier. We were also hoping that interest exemption for housing loan interest even in the hands of non-affordable customers would increase from Rs 2 lakh," he said. Ramesh Nair of JLL rated Budget 2020 3/10 for real estate , and said that it has no direct impact on realty sector.
Kishore Jain, president CREDAI, Bengaluru, opined that neither the real estate sector was discussed nor the measures on repo rate deduction, GST rate reduction on construction materials were not mentioned. “Apart from the affordable housing push and personal tax relief, no major benefits came in for resolving the current housing mess. For instance, a hike in the Rs 2 lakh tax rebate on housing loan interest rates under Section 24 of the Income Tax Act could have kick-started healthier demand for housing, especially in the affordable and mid-segment categories. But there was no announcement in this regard,” said Anuj Puri, Chairman – ANAROCK Property Consultants. Rajeev Talwar, CEO, DLF Ltd, too had a similar opinion. “As far as real estate is concerned, it's only affordable housing. I think the misses are more than what has been given. We have been suggesting that the government provide a one-time rollover of loans like it did in 2008, and also come up with a better rental housing policy given the success of the commercial leasing segment because that’s where all the foreign direct investment money has come in. So, a large amount of work needs to be done," he said.
Read More: Budget 2020 - Overview by Surfaces Reporter
The Positives
Few industry experts and developers, however, have welcomed the budget proposals. Jaxay Shah, past national president CREDAI remarked that the direction of Budget 2020 is progressive, however there are no sector specific measures for the realty sector. The proposal to extend tax holiday on profits earned by developers is a welcome move, said Sandeep Runwal of Runwal Group. Further the extension of additional Rs 1.5 lakh tax benefit on interest paid on affordable housing loans and increasing the capital gains tax paid on the differential of circle rate and real estate transaction value to 10% from 5% is being viewed positively by the realty players. "The government’s decision to further bolster the guarantee scheme for NBFC’s & HFC’s and offer subordinate debt to MSMEs, will to a certain extent, help bring liquidity in the market alongside the abolition of DDT. The tax holiday for developers of affordable housing and the extension of home loan interest benefit for affordable homes by another year is a welcome step for real estate. It is a positive step towards realizing the Prime Minister’s vision of housing for all by 2022. All in all - A good budget that rekindles hopes of a $5 trillion economy by 2024," remarked Kaushal Agarwal, chairman, The Guardians Real Estate Advisory. Anshuman Magazine, chairman & CEO - India, South East Asia, Middle East and Africa, CBRE, seems to agree with Agarwal. He said, "The announcement made by the FM for bringing relief to NBFCs will prove to help address the liquidity situation in the real estate industry. This is further expected to improve sentiments among the financial institutions and credit options for big and small developers.”
Amit Raheja, CMD, Wealth Clinic, said that though the real estate has not got anything directly from Budget 2020 there are announcements that will indirectly help the sector. The direct benefit will come from the affordable housing tax holiday which has been extended to March 2021 and extension of withholding tax. "By extending the withholding tax, the developers and buyers will benefit if a developer sells his product at a rate lesser than the circle rate. This happens when there is a slowdown in the market and as an urgency measure, someone sells it at a lower price, the transaction in these cases used to become questionable on the pretext that the rest of the amount has been paid in cash," he explained. The measures taken by the government to boost the rural economy and improve infrastructure will indirectly lead to real estate development, added Raheja.
Vikas Bhasin, CMD, Saya Homes is of the opinion that many fence-sitting buyers are expected to take a call on real estate investment as the Budget has extended an additional Rs 1.5 lakh tax benefit on interest paid on affordable housing loans to March 2021. He believes that the extension should have been provided for the non-affordable housing segment also as housing prices in metros are high. "We feel that the economic measures that the government has taken for the overall health of the economy will have a bearing on the commercial segment. The Delhi-Mumbai Corridor announcement will also see the development of commercial spaces along with residential," remarked Bhasin. “The emphasis given on infrastructural development of the country will help in seamless connectivity and also give thrust to the realty market,” said Santosh Agarwal, CFO, AlphaCorp.
Boost to Manufacturing
The manufacturing industry is impressed with the budget proposals. Rajesh Uttamchandani, director, Syska, said, “We welcome the steps taken by the government in the Union Budget towards boosting electronic manufacturing in the country. The electronic industry has huge potential both in terms of manufacturing in India and job creation and will provide a major impetus for growth. This will further enhance the exports of networked products. Another important step taken is the further push provided by the government for its smart cities mission. It aims to create 100 cities with state-of-the-art infrastructure that includes intelligent lighting, Wi-Fi access points, leading to enhancement of the quality of life of every citizen while building efficient living spaces for future generations." Bishan Jain, director, Goldmedal Electricals is happy with the announcement on making every district of the country an export hub, with the government allocating Rs 27,300 crore for the development and promotion of industry and commerce in 2020-21. "This initiative will enable Indian companies to develop the infrastructure and manufacturing capabilities required to build products that can be exported. We also welcome the government’s commitment towards boosting emerging technologies such as internet of things, (IoT), artificial intelligence (AI), machine learning (ML), Analytics and the creation of a sustainable environment to combat climate change," said Jain.
If the announcements made post Budget 2019 - rationalisation of corporate tax and the announcement of alternative investment fund for the stressed real estate sector - is anything to by, then it can be expected that Budget 2020 too is a work in progress and more can be expected as the year progresses.