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.