‘Real’ Impact of Union Budget 2014
With the maiden budget of Modi government finally unveiled, the foundation bricks of “Ache din” has been laid by the Finance Minister for the realty sector. To pave the road for future development and infuse positive sentiments in the market, the sector was eagerly waiting for this budget. And with a slew of progressive measures announced, real estate and infrastructure seems to have got the lion’s share in the Union Budget 2014.
Thus, in the backdrop of the current market scenario, CommonFloor has tried to analyse the announcements and their implications on the real estate sector as a whole.
| Industry Expectations | The Budget States | Impact on the sector | CF Views |
| Ease in FDI investments | *Requirement of the built up area and capital conditions for FDI reduced from 50,000 square metres to 20,000 square metres and from US$ 10 million to US$ 5 million respectively for the development of smart cities.
*Projects with at least 30 per cent of the total project cost for low cost affordable housing will be exempted from minimum built up area and capitalisation requirements, with the condition of three year lock-in. |
*With smooth minimum threshold conditions in FDI, there will be a spur in opportunities for cheaper capital in smaller projects, as opposed to larger projects earlier.
*Projects will be delivered on time. *The reduction in built-up area and size will give smaller developers access to FDI. *All in all, it will boost the affordable housing, which is the dire need of the country.
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*Will impact the sector positively.
*Prices might go high |
| Smart Cities | *A sum of Rs 7,060 crore has been sanctioned to develop “100 smart cities”, as satellite towns of larger cities and by modernizing the existing mid-sized cities.
*The Amritsar Kolkata Industrial master planning will be completed for the establishments of Industrial smart cities in seven States of India. *The master planning of three new smart cities in the Chennai-Bengaluru Industrial Corridor region, viz., Ponneri in Tamil Nadu, Krishnapatnam in Andhra Pradesh and Tumkur in Karnataka will also be completed.
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*These smart cities will serve as counter magnets to the already existing overpopulated cities.
*It will lead to the steady and holistic growth of the cities. *With the development of smart cities, avenues for employment will come up which, in turn, will enhance the housing demand.
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*With FDI norms relaxed, these smart cities will also get a fillip.
*However, there are chances that speculations might run the show in these smart cities. If land is available at higher rates, then the whole point of affordable housing will be lost. *Good in intent, but should be implemented with utmost seriousness. |
| Tax incentives for REITs | The Union Budget has proposed tax pass through status for Real Estate Investment Trusts (I-REITs) in India.
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*Companies with considerable commercial assets will have liquid income, which will reduce the prevailing debt situation.
*As REITs exclusively target completed properties with clear title, it will also lead to faster project completion, and will also bring-in the much needed transparency. *With debt reducing, economy will also get back on the track. |
*Could be a potential game changer. However, clarity is awaited on the nature of tax sops, the imminent listing of I-REITs.
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| Policies for Housing for All by 2022 | *The Government plans to provide housing facilities for all by 2022 for which a sum of Rs 4,000 crore is to be provided to NHB for affordable housing.
*The deduction limit on account of interest on loan in respect of self occupied house property has been increased from Rs 1.5 lakhs to Rs 2 lakhs *Investment limit under section 80C of the Income Tax Act has been increased from Rs 1 lakh to to Rs 1.5 lakh. *Inclusion of slum development in the list of Corporate Social Responsibility (CSR).
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*Will promote affordable housing
*Deduction in the home loan interest will leave more disposable income in hand, which will encourage lot of young buyers to take a plunge in the market. *With these reforms, new technology in construction sector is expected to come up. |
*Great initiatives to promote housing for all. |
| Incentives for industry | *Rs 100 crore provided for setting up a National Industrial Corridor Authority, with its headquarters in Pune.
*eBiz platform for all business and investment related clearances and compliances available on a 24*7 single portal, with an integrated payment gateway. Interestingly, all Central Government Departments and Ministries will integrate their services with the eBiz on priority by 31 December this year. *Plan for the Bengaluru Mumbai Economic corridor (BMFC) and Vizag-Chennai corridor to be completed with the provisions for 20 new industrial clusters. *Kakinada, its adjoining areas and the port will be developed as the key drivers of economic growth in the region with a special focus on hardware manufacturing.
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*NICA will help in better coordination and implementation of the 5 industrial corridor projects with a positive impact on Industrial real estate.
*eBiz will act like the much needed single window clearance will positively impact the sector.
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| Making SEZs effective and removing SEZ units from Minimum Alternate Tax (MAT) purview | Steps to revive SEZs and make them effective instruments of industrial production, economic growth, export promotion and employment generation.
*For this, available un-utilized land will be used efficiently. |
*An important initiative for manufacturing sector.
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*Though initiated, there is still no clarity on this.
*No clarity on land acquisition *lack of clarity on what kind of land will be utilized * No reduction on MAT. |
| Measures for Rural Development | *Pradhan Mantri Gram Sadak Yojana (PMGSY) is proposed with a funding of Rs 14,389 Cr
*Rs 8,000 Cr has been allocated to the National Housing Bank for Rural Housing Scheme through Rural housing fund. |
*It will improve the road connectivity with an indirect impact on proposed industrial corridors and smart cities. | Will benefit the sector |
| Measures for Urban Renewal | *At least 500 habitations with poor physical infrastructure such as water supply, sewerage, drainage, electricity, food and solid waste management will be renewed with necessary facilities in ten years
*A sum of Rs 100 Cr has been allotted for the development of metro in Ahmedabad and Lucknow *Several new Airports will be developed through PPP’s or AAI in Tier I and Tier II cities |
*The connectivity and accessibility will improve, which will have direct impact on Residential Real estate
*Commercial real estate near these new airports will get a boost |
With improved connectivity, new airports and better infrastructure, real estate sector will definitely get a shot in the arm. |
| Reforms in PPP | *An institute called 3P India will be set up with a corpus of Rs 500 Cr facilitating to mainstream PPP’s with better and sophisticated models of contracting and develop quick dispute redressal mechanism | *Partnership between the government and private players will boost the Infrastructure in a significant way. | Will encourage lot of infra-development |
| Development of new expressways | *a sum of Rs 37,880 Cr is allotted for the construction of highways and expressways to NHAI, which includes Rs 3000 Cr proposed in North East.
*Rs 500 Cr will also be set aside by NHAI for project preparation |
*North-East that has been excluded till now finally got a lion’s share. With improved connectivity, there will be lot of growth opportunities. |
