The real estate sector has been infused with a new lease of life following the announcements made in the Union Budget 2016-17 and passing of the Real Estate (Regulation and Development) Bill 2016 by the Parliament. From the macro perspective, the Budget appears to be focussed on growth with a major thrust on infrastructure. Despite global and domestic pressures, it was heartening to see the government giving priority to fiscal discipline and reiterating its commitment to meet the fiscal deficit target. This will help reinstate the faith of investors in the robustness of the Indian economy. The near and medium term prospects for the economy indeed look bright, keeping in view some healthy trends seen in the first three quarters of this fiscal – low inflation, manageable current account deficit, increasing foreign direct investment and reform push in areas like banking and infrastructure.
Coming to real estate, the outlook for the sector remains positive. In the Budget, the sector got a major respite through waiver of Service Tax for houses built under 60sqm, besides offering additional exemption of Rs50,000 for housing loans up to Rs35 lakh provided cost of house is not above Rs50 lakh. The Finance Minister’s proposal – that any distribution out of SPV income to REITs and INVITs with specified shareholding will be subject to Dividend Distribution Tax (DDT) – will spur investments in Real Estate Investment Trusts (REITs), which had not happened till date since DDT was acting as a major deterrent for investors. Excise duty exemption on Ready Mix Concrete (RMC) is also a welcome move as it will lower the cost for housing construction, and in turn encourage builders to pass on the benefits to home buyers.
The government has also extended incentives for affordable housing. The ‘Housing for All by 2022’ is an ambitious programme and can help revive the downturn witnessed in the sector. The Pradhan Mantri Awas Yojana seeks to accomplish the construction of about two crore houses in the next six years to benefit primarily slum dwellers, urban poor and those belonging to economically weaker sections and lower income groups. The government has also set the ball rolling on the Smart Cities programme, which will provide a major push to urban development and unlock opportunities for all through robust infrastructure development.
The passing of the Real Estate (Regulation and Development) Bill – a key reform pending for long – will be instrumental in transforming the sector, benefitting both consumers as well as developers. The move is expected to facilitate more foreign direct investments. It will help strengthen transparency, accountability and responsibility for developers. The bill also provides comprehensive consumer protection which was not there before.
On the other hand, the real estate sector could have benefitted more had it been provided some additional incentives. A change in income tax slabs was expected, which would have benefitted common citizens. Such a measure would have put more money in the hands of individuals, making it easier for them to purchase a property of their choice. The real estate sector’s expectations of being accorded industry and infrastructure status are yet to see the light of day. Moreover, single-window clearance proposal has not been addressed yet again and remains a pipe dream. It may be noted that the most tedious task for a developer is to get project clearance from the government, which at times even results in delay of executing the project. There is an urgent need to address this issue for the betterment of the entire industry.
The author is managing director of SARE Homes. Views expressed are personal