Union Budget 2013 – Realistic with No ‘Real’ Implication

Terming the Union Budget 2013-14 as ‘moderately encouraging’ in general, Jones Lang LaSalle India, a leading real estate consulting firm, however, referred it as ‘tepid’ as for as Indian real estate sector is concerned.

“We did not expect this (budget) to be a game-changer. The realities of the Indian economic situation need to be viewed in context with the factors that drive it, not least of 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,” said Anuj Puri, Chairman & Country Head of Jones Lang LaSalle India.

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 unutilised 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, Puri said, who listed other highlights of the budget concerning real estate market in India.

·         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, Puri said, adding, “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.”

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, JLL India said in a statement.

Junckers Enters Lanka with Range of Hardwood Flooring

Junckers, the world renowned Danish company specializing in hardwood flooring has introduced their flooring range in Sri Lanka recently. Junckers, which has been operating in the Indian market for 15 years, has tied up with Srilanka's Delmege, reputed providers of world acclaimed building and interior products. The tie up has started with Junckers bagging the prestigious 'Movenpick' hotel project in Sri Lanka.

The new flooring by Junckers was launched amidst the presence of eminent Sri Lankan architects, representatives of Delmege Forsyth and Co. Ltd. & Junckers in Colombo. A special presentation on Junckers was organized for those present by Henrik Lundby Petersen, Export Manager, Junckers. 

Suresh Kumar Mansukhani, Country Manager, Indian Subcontinent, Junckers, stated, “It gives us great pleasure to be associated with Delmege to sell Junckers products in Sri Lanka. We look forward to make it a huge success here as the floors are favorable for the climatic conditions.” Nilantha Fernando, Director/CEO, Delmege Forsyth & Co. Ltd, Dilhan de Silva, Group CEO, Delmege Forsyth and Co. Ltd. represented the Sri Lankan partners.

The 80-year-old leading European brand in Hardwood flooring, Junckers has been operating in the Indian market for 15 years. Junckers have been producing flooring since 1932 & today produce around 1.5 million square meters of flooring selling worldwide through subsidiaries in 7 countries & distributors/ agents in 40 countries & have been in Asia for 35 years. 

Hospitality is one of the most significant segment Junckers serve globally. In India Junckers flooring has been used by eminent and reputed hotel chains such as Taj Group, JW Marriott, The Hilton Group, The Oberoi Group, The Meridien and many more. “Junckers has received overwhelming response in the Indian real estate sector with prominent builders like Supertech opting for the brand for their ultra luxury project, Supernova. 

Pioneer Urban has also chosen Junckers for their luxury residential project. Apart from this, Junckers provide approximately 350,000 square meters of sports flooring every year to top global sports venues such as the Olympic Games.” shared Mr. Suresh Kumar Mansukhani of Junckers. 

The solid hardwood flooring by Junckers possesses unique qualities and advantages. Compared to engineered wooden flooring which has HDF, pine wood, ply wood or wood as the core material, Junckers offers hardwood flooring in solid wood. The solid wood could be polished up to the entire thickness as the material is homogeneous throughout and looks natural and is long-lasting. 

Solid Hardwood flooring by Junckers offers an impressive range of pre finished hard wood flooring in various thickness, styles, grades & finishes along with a large palette of colors. Also, these floors go quite easy on the installation part. Suitable for all climatic conditions with an 8 percent moisture content, Junckers pre-finished flooring requires no surface treatment after installation, contributing to a very clean and accelerated installation. It can either be glued or nailed or also installed through unique Junckers clip system, thus providing uniform expansion and contraction, irrespective of the installation method.

Centre Incentivises Saving for Household Sector

The Finance Minister, P Chidambaram in his Budget speech in Lok Sabha today said that increasing savings and their optimal allocation for productive uses lead to higher economic growth.

After touching a high of 36.8 percent in 2007-08, gross domestic saving fell by 6 percentage points in 2011-12. The private sector, comprising households and corporate, remains the contributor to saving. The household sector must be incentivised to save in financial instruments rather than buy gold.

The Rajiv Gandhi Equity Savings Scheme will be liberalized to enable the first time investor to invest in mutual funds as well as listed shares and one can do so, not in one year alone, but in three successive years. The income limit will be raised from Rs. 10,00,000 to Rs. 12,00,000.

A person taking a loan for his first home from a bank or a housing finance corporation upto Rs. 25,00,000 during the period 1.4.2013 to 31.3.2014 will be be entitled to an additional deduction of interest of upto Rs. 100,000. This will promote home ownership and give a fillip to a number of industries like steel, cement, brick, wood, glass etc. besides jobs to thousands of construction workers.

In consultation with RBI, it is proposed to introduce instruments that will protect savings from inflation, especially the savings of the poor and middle classes. These could be Inflation Indexed Bonds or Inflation Indexed National Security Certificates. The structure and tenor of the instruments will be announced in due course.

Developers term Budget as ‘tepid’ and ‘lackluster’ for real estate

Though the union budget 2013 has disappointed the real estate industry, there is something to cheer about for the first time home buyers as the finance minster proposed a tax relief of Rs one lakh for the first year for a loan amount upto Rs 25 lakh.

According to the budget proposal, a person taking a loan for his first home from a bank or a housing finance corporation upto Rs. 25,00,000 will be entitled to an additional deduction of interest of upto Rs. 100,000. However, this provision is only for the first year and with a carry-forward benefit of the unutilized deduction to the second year. 

The proposal is expected to promote home ownership and give a fillip to a number of industries like steel, cement, brick, wood, glass etc. besides jobs to thousands of construction workers.

Other proposals related to real estate or construction industry are:  Setting up of the Urban Housing Fund by the NHB with an allocation of Rs. 2000 crore that will infuse liquidity for urban housing, thereby boosting demand.

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.

Referring to the budget proposals related to real estate sector as ‘moderately encouraging, but tepid for the Indian real estate sector’, Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India, said, “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.”

Developers too termed the budget as “unimpressive” and “lackluster” for real estate point of view, as the sector was expecting more sops from the budget.

Reacting to the budget, Kishor Pate, CMD - Amit Enterprises Housing Ltd, Pune, said, “It was not an impressive budget, especially for real estate. While the additional income tax deduction of Rs.1 lakh for home loans up to Rs. 25 lakh taken by first-time home buyers is positive, the fact is that it will not benefit the growing middle-class who are looking for centrally located homes with at least two bedrooms. Another disappointment was that there were no encouraging news in terms of personal tax slabs. Some relief for individual mid-income tax payers would have been some incentive for considering home ownership. We are happy that infrastructure has been given greater importance and allotments by the Budget and do hope that it will mean that some of the pending projects will now begin to take off.”

Denouncing the budget as ‘lackluster’ Anil Pharande, Chairman of Pharande Spaces & Vice President of CREDAI (Pune Metro), said, “The Finance Minister has taken a cautious approach in this budget, which is on the whole well balanced and in tune with the current economic requirements. Real estate has not received much of a boost overall, which was a dampener. The provisions for budget homes will not be sufficient to create more demand, and high-end homes have become even costlier because of the increased service tax. The additional allocation for JNNURM to make more buses available will prove to be a boon for many emerging areas which have been suffering from lack of accessibility. On the whole, it is a balanced but lackluster budget.

Overall the budget did not meet the expectations from developers, occupiers and investors in the real estate industry as it did not address their concerns on MAT and DDT taxation on SEZs, recognition as an industry/infrastructure sector, steps to reduce the input costs and encourage more investments in real estate, which is one of the largest employment generators, says Sanjay Dutt, Executive Managing Director- South Asia, Cushman & Wakefield.

“Given the limited scope that the Finance Minister had, the introduction of an additional interest deduction on interest of upto Rs. 1 lakhs for loans of upto Rs 25 lakhs bought by first time buyers is a very welcome move. First time buyers in the affordable segment are the most vulnerable and, given the high mortgage interest and inflation rate regime that has prevailed since sometime time, they needed to be protected and encouraged. This move along with the 50% increase in funding allocation for rural housing loans and the new allocation for urban housing are measures that will help the affordable housing sector to  gather momentum and develop at a greater pace,” Dutt added.

 

Industrial Corridors

The Finance Minister, P Chidambaram in his Budget speech today said that the Delhi-Mumbai Industrial Corridor (DMIC) project has made rapid progress. Plans for seven new cities have been finalized and work on two new smart industrial cities at Dholera, Gujarat and Shendra Bidkin, Maharashtra will start during 2013-14.

“We acknowledge the support of the Government of Japan. In order to dispel any doubt about funding, The Government will provide, if required, additional funds during 2013-14 within the share of the Government of India in the overall outlay for the project,” he said.

The Department of Industrial Policy and Promotion (DIPP) and the Japan International Cooperation Agency (JICA) are currently preparing a comprehensive plan for the Chennai Bengaluru Industrial Corridor. The corridor will be developed in collaboration with the Governments of Tamil Nadu, Andhra Pradesh and Karnataka.

The next corridor will be the Bengaluru Mumbai Industrial Corridor on which preparatory work has stared, the minister announced.