From smart cities to housing for all, FM wants 6 crore dwellings created

From 100 smart cities last year, the finance minister has sounded a new mantra -- housing for all. The overall plan is to construct six crore dwellings across rural (four crore) and urban (two crore) areas. In fact, the BJP government has also earmarked Rs 22,407 crore for housing and urban development in the current budget.

What are realtors saying?
While all of this augurs fairly well for the Indian real estate sector, the fraternity was expecting the new government to announce tax incentives that would stimulate demand.
Monish Doshi, MD, Acme Housing India, said the government has tried to work out long term plans, although there is not much in the store for real estate segment except 100% real estate investment trust (REIT) is now available for commercial real estate and reduction in corporate tax over four year. "Abolishing wealth tax will allow people to have more than one flat, without additional tax implication. But service tax has been increased to 14%. Also there has been no incentive for affordable housing," he said.

Does the government have a plan?
The announcement of six crore housing units by 2020, though encouraging, needs to be backed up by strong policy directives in the area. "Successive budgets have acknowledged the need for increased focus however, there has been very little done on ground in this direction by earlier governments. We will have to wait to understand the implementation strategy that should back such an announcement," said Harpreet Singh, partner - Risk Advisory Services, PwC India.

What's the status on smart cities?
The budget did not provide any details including factors such as how it will define these cities and which cities have been identified. "However, increased allocations for rail-road development, penetration of education and training centres and towards the digital India initiative could contribute to the shaping of smart cities," said Anuj Puri, chairman and country head, JLL India.

Any initiatives to stimulate demand?
Surprisingly, the budget did not have any major announcements to boost the stagnating housing demand. Also, relaxation in interest deduction on home loan, subsidising interest rates and personal income tax limits were expected but nothing happened.
However, Neeraj Bansal, head of real estate and construction, KPMG in India, feels the infrastructure sector certainly gets a boost with clarity and tax incentives, which will have a cascading, but gradual impact on the real estate demand. "While the proposed rationalisation of capital gains tax regime for sponsors of REIT and pass-through status for rental income from owned assets is a welcome move, the budget falls short on many expectations including affordable housing," he said.

Will realty prices increase?
Adding to the service tax disappointment is the fact that construction cost is set to increase as service tax exemptions have been withdrawn. "The increase in service tax on construction and excise duty on inputs apart from cess on petrol and diesel coupled with increase in freight rates on cement announced by railway minister earlier is expected to impact the cost of housing," said Navin Raheja, chairman, National Real Estate Development Council (NAREDCO). He said that all this adds to the pressure on real estate developers at a time of sluggish demand. "The increase in pricing will be worked out after the fine print of the budget papers is analysed," added Raheja.

Any positives from the budget?
While presenting a growth oriented budget, the focus clearly has been on investment in infrastructure, increasing urban housing and listing of REITs that are positives for the realty sector. Implementation of GST by April 2016 and reduction in corporate tax in a phased manner are also measures which should drive the key sectors of the economy, said Kamal Khetan, chairman and managing director, Sunteck Realty Ltd.

The move to reduce corporate tax rate to 25% over four years is a positive that will attract more investments over time and the rationalisation of capital gains in case of REITs is also a positive. "However, there is lack of any incentive or stimulus to generate more demand which was widely expected, missing also are policy steps to channel more funding into the sector. The budget has not offered anything direct and tangible for the sector and this is disappointing because the real estate / construction sector has a huge economic multiplier effect and offers a solid base for the 'Make in India' program to flourish from," said Om Chaudhry, founder and CEO, FIRE Capital and chairman, Astrum Value Homes.

The FM also removed wealth tax altogether and replaced it with a new super rich tax applicable only to assets worth above Rs 1 crore. "This means that for the majority of Indians, there will no longer be a tax on property ownership and that only super-luxury homes will be taxed. This is a big relief for the Indian middle class," said Kishor Pate, CMD, Amit Enterprises Housing Ltd.