Real estate did not get most of expected positives: Niranjan Hiranandani, Hiranandani Group

Removing the Dividend Distribution Tax on REITs is a welcome measure, which will help boost inflow of funds in India’s real estate sector

  • Updated On Feb 29, 2016 at 05:51 PM IST
By Niranjan Hiranandani, CMD, Hiranandani Group

First Reaction to the Budget Speech: it is balanced and good. To put it in a different way, it is also ‘play-safe and cautious’. And, barring a few aspects, like DDT for REITS, hike in HRA and allowing 100% deduction on profits made by entities constructing affordable houses, it does not seem to have any major ‘positive’ to bring in vibrancy to real estate.

Second reaction: the real estate sector has been left saying, “Yeh Dil Maange More” yet again. This is the third time that the Hon’ble Finance Minister Shri Arun Jaitley has presented a budget, and his budget speech had precious little for the real estate developer, the home seeker as also all stake holders. When one looks at the Macro-economic aspect, on how effective the budget would be when it comes to enabling larger disposable surplus in hands of the citizen, effectively creating situation where home buying could take off once again, there are no ‘big bang’ measures from Shri Arun Jaitley.
While there is no doubt that the Hon’ble Finance Minister has the nation’s economic growth in mind, he seems to have little to offer to speed up the ‘growth story’. In the debate between curbing deficit and powering growth, the Hon’ble Finance Minister has opted for measures which aim at narrowing the deficit in the next fiscal year, while also providing succor for India’s Agriculture sector. In his budget speech, the Hon’ble Finance Minister said, “Different schools of thought have argued either in favor of fiscal consolidation and stability or for less aggressive consolidation and for boosting growth," in his 90 minute long speech. “I have made the policy option and decided that prudence lies in adhering to fiscal targets,” he said, a move which may ensure another rate cut, even as low global oil prices point to inflation levels which will remain near next year’s target. There is no disputing the ‘positive aspect’ of adhering to fiscal targets, but some more moves to boost growth would have been welcome. Real Estate was expecting infrastructure status so that institutional finance could be accessed, this point does not seems to have made it in this Budget Speech.
Looking at the Budget Speech from the perspective of first-time home buyers, they have been given the benefit of an additional deduction of Rs. 50,000 on home loan interest for loans not exceeding Rs. 35 lakh, where the value of the house is no more than Rs. 50 lakh. Across the peripheral areas of the Mumbai Metropolitan Region (MMR) and across small cities and towns of Maharashtra, this looks like a positive move, and should result in improved home buying sentiment in real estate hubs where housing comes at lower costs. This might result in some positive sentiment in peripheral and far-flung areas, but when we look at Metro locations, like Thane or Navi Mumbai – I am not even mentioning Mumbai and suburbs here - this deduction will not be sufficient to positively impact sentiment for first-time home buyers, given that there are hardly any locations where the cost of a house is Rs 50 lakh or lower, as such the exemption would not makes any difference to home buyers in Metro Cities.
Secondly, individuals who don’t own a house and do not get a house rent allowance as part of their salary, are entitled to an annual tax deduction of Rs 24,000, which the Hon’ble Finance Minister has proposed raising to Rs 60,000. This again is a positive move, but will not positively impact sentiment in real estate.
What are the positives? For one, removing the Dividend Distribution Tax on REITs is a welcome measure, which will help boost inflow of funds in India’s real estate sector. I expect millions of dollars to come into India’s real estate, this will positively impact India's real estate sector.
Secondly, the Budget Speech had the Hon’ble Finance Minister mentioning measures that will support ‘affordable housing’, by allowing 100% deduction on profits made by entities constructing such homes. This should ensure Prime Minister Narendra Modi’s vision of ‘Housing for All by 2022’ will move towards becoming a reality.
For me, what is important is something that was not part of the Budget Speech: will we get clarity on GST implementation? To conclude, overall the Budget Speech was ‘balanced and good’; but Real Estate did not get most of the expected positives.
  • Published On Feb 29, 2016 at 05:47 PM IST
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