By Mr. Anuj Puri, Chairman & Country
Head, JLL India
The Union Budget 2014-15 was presented in
the parliament under economic circumstances that required tax revenues to keep
pace with targets. Considering the state of government finances and the current
situation – below-normal monsoons, Middle East tension leading oil price
volatility, the weakness of the India rupee etc., there was not much room for
populism.
However, considering the high inflation and
curtailed savings that they have had to contend with for some years now,
taxpayers still expected a fair shake from the new government, such as enhanced
deductions, reduction in tax rates, interest subvention on home loans and tax
incentives to affordable housing.
The Finance Minister took a cautious, yet
courageous path with his budget announcement:
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| Mr. Anuj Puri, Chairman & Country Head, JLL India |
Ø Housing…
In terms of relief to the housing sector,
the budget has allocated Rs. 4000 crore for low-cost housing schemes. Apart
from this, he has also indicated that there will soon be a relaxation of FDI
norms for the affordable housing sector.
Though the government has announced such
incentives for low-cost housing in the past, the real task lies in the fast
execution of the fast execution of these initiatives. It is very positive that
the government has taken due note of the demand-supply mismatch in the LIG and
EWS housing segments, and it remains to be seen how fast these initiatives hit
the ground in real time.
Significantly, the budget has increased the
income tax deduction limits under 80C, of which the repayment of principal on
housing loans is a component. This limit has been raised from Rs. 1 lakh to Rs.
1.5 lakh. Additionally, the budget has also increased the deduction limit on
interest payment for housing loans from Rs. 1.5 lakh to Rs. 2 lakh. These two
factors alone will lead to a vastly improved sentiment on the housing markets.
The budget gave further indirect benefits
for the residential sector by increasing the individual income tax exemption
limit from Rs. 2 lakh to Rs. 2.5 lakh. This will increase disposable income of
individuals and would have further implications on their ability to service
home loans.
Ø Construction Sector…
Construction costs have been rising at the
rate of 17% over the last three to four years, and this budget has not provided
enough measures to bring down these costs. Contrary to expectations, material
costs involved in real estate construction will remain high over the near-to-medium
term, which is bound to put pressure on developers’ margins.
Ø Infrastructure…
The infrastructure and manufacturing
sectors have been given paramount importance in this budget, since these are
job creating verticals. Banks will now be encouraged to extend long-term loans
for infrastructure projects without any regulatory pre-emptions such as CRR,
SLR and priority sector lending norms. This additional enforcement of banks to
support the creation of infrastructure will result in faster infrastructure
creation and the consequent benefits to the real estate sector.
The budget has allocated a total of Rs.
37880 crore towards the NHAI for the construction of highways, and additional
Rs. 3000 crore to boost road connectivity in the North-East regions. For the
current year, it has targeted the completion of 8500 kilometres of national
highways, which are a known real estate catalyst and will have long-reaching
implications on the markets of the cities they connect.
Ahmedabad and Lucknow have been singled out
as special beneficiaries of this budget with the allocation of Rs. 100 crore
towards the deployment of Metro rail systems in these cities. The increased
connectivity will raise the scope of real estate development there and also
have an impact of property valuations over the mid to long term
The development of 16 new ports has been
proposed at an outlay of Rs. 11,000 crore. Additionally, an allocation of Rs.
11,600 crore has been made for the development of outer harbour port projects.
The combined effect of these provisions will be that there will be an increase
in demand for commercial office space from the manufacturing sector in India’s
major port cities.
Ø Smart Cities….
As promised in the new government’s
manifesto, it has proposed the creation of 100 smart cities across India. The
budget has allocated Rs. 7060 crore towards this end, thereby giving a
financial sign-off for this concept. This will have very positive implications
for real estate across all segments, namely residential commercial, retail and
hospitality.
Smart cities, by definition, imply
considerable demand for technology-enabled services, and this is a big positive
for IT/ITeS companies in India. Significantly, as much as one-third of the
country’s demand for office space emanates from this sector.
Ø Retail ..
The country’s warehousing sector has received a boost
with an allocation of Rs. 5000 crores. In this, we see positive implications
for the retail real estate sector on account of a strengthened supply chain,
which has been a serious requirement of this sector for a very long time.
Apart
from this, the budget has not provided any further benefits to the retail
sector, which is a disappointment.
Ø Hospitality…
The
budget also brought cheer to the hospitality sector in two major ways. One, it
has stipulated that electronic visa services will be introduced in nine
international airports in India over the next six months. This will increase
the magnitude of tourist arrivals in the country.
Secondly,
it has indicated that major provisions will be made for the creation of
world-class convention centres to be developed through the PPP model. Once
these centres are created, they will bring about an increase in corporate
tourism into the country. Ailing hotel chains are looking at a
significant revival in their fortunes, and we expect that the absorption of
hotel-related real estate will rise in the bargain.
All
In All...
The
real estate sector’s expectations have definitely not been met completely in
this budget. However, given the economic situation prevailing in the country,
this is not really surprising as the government needs to balance myriad issues
while addressing growth. We are satisfied at the real estate sector is once
again headed in the right direction.
For
Media Contact
Arun
Chitnis
Head
– Corporate Communications & Media Relations
JLL
India , Pune
411001.
Tel: (020) 30930441 Fax: (020) 40196101
Mob: +91 9657129999
Mob: +91 9657129999
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