The Budget could usher in better days for the real estate sector that has been reeling under slowing sales and cash crunch for the past two years. Here are some of the major announcements relating to the sector.
Pass-through status to REITs: This is a big positive for this cash-starved sector, which was eagerly awaiting clarity on taxation of Real Estate Investments Trusts or REITs. REITS are special investment vehicles which function like mutual funds. They invest in real estate properties which generate income.
FULL COVERAGE:Union Budget
REIT units are listed on exchanges and traded like stocks.
The pass-through status means that the income generated by REITs will be taxed in the hands of investors; the fund will not pay any tax on it.
The Securities and Exchange Board of India had come out with draft guidelines on REITs in October 2013. The final guidelines were to be released in December last year but were held up due to ambiguity over taxation.
"The introduction of REITs will provide access to capital markets for income-generating real estate, creating a new financial asset and providing an exit route for those investing in the development of these assets," says Rohit Gera, MD, Gera Development.
"It will ease liquidity for developers and help retail investors earn regular income and benefit from capital appreciation," says Neeraj Bansal, partner and head, Real Estate and Construction, KPMG India.
"It is the right beginning. Along with the tax exemption to REITs, we expect these decisions to positively influence the market," says Harindra Nagar, managing director, Paras Buildtech.
Interest exemption limit increased to 2 lakh: Home buyers have a reason to smile. The tax exemption limit for interest payments on home loan under Section 24 of the Income Tax Act has been increased from Rs 1.5 lakh to Rs 2 lakh. This along with the thrust on affordable housing will boost the demand for houses.
"The finance minister also mentioned about providing thrust to low-cost housing, which should be a win-win situation for individuals availing of loans to buy property for themselves," says Agarwal of KPMG in India.
Thrust on infrastructure, 100 smart cities and easier FDI norms: The budget has made big allocations for improving the country's infrastructure.
"This will have positive implications for real estate across segments. Smart cities, by definition, imply considerable demand for technology-enabled services, which is a big positive for IT/ITeS companies in India. Significantly, as much as one-third demand for office space comes from this sector," says Anuj Puri, chairman & country head, JLL India.
The FDI norms are also proposed to be eased. The minimum built-up area requirement has been reduced from 50,000 sq metres to 20,000 sq metres and the minimum capitalisation requirement from has been reduced from $10 million to $5 million for FDI in real estate projects.
"This will attract a lot of foreign money, which in turn will increase avenues for growth," says Sumit Jain, co-founder & CEO, Commonfloor.com
However, some issues remain unaddressed, says Vineet Singh, EVP and business head, 99acres.com. Developers and home buyers were expecting measures for increasing transparency in project clearances and land acquisition policy. The real estate Bill, expected to streamline processes, has also not been touched upon, he says.