Union Budget 2015: Real estate sector feels let down

The Budget failed to live up to the expectations of the real estate sector, though the thrust on infrastructure and sustainable economic growth will benefit it in the long run.

Experts say the Budget didn't give any direct benefit to buyers to boost demand for houses and take the sector out of the slump. In fact, areas such as affordable housing and smart cities didn't found any mention.

"Real estate is an important sector which can help the country achieve high growth. But the government missed the opportunity to use it to boost growth," says Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield.

"The Budget did not provide details of initiatives taken by the government on smart cities. Things such as how it will define these cities and which cities have been identified remain unclear. However, increased allocations for railroad development, education and steps towards the Digital India initiative could contribute to the shaping up of smart cities," says Anuj Puri, Chairman & Country Head, JLL India.

"The Budget did not deliver what it promised. It has given broad directions for housing requirements till 2022. However, in terms of concrete measures, direction is lacking. No special policy to boost the supply of affordable housing has been announced," says Prabhat Ranjan, CMD, Olympeo Infrastructure Pvt Ltd.

The increase in service tax will increase the cost of construction and developers will pass on the burden to buyers. This will increase prices, which will be a big negative in the current scenario, when sales are at record low.

However, the following few announcements will directly or indirectly benefit the sector:

1) RATIONALISATION OF CAPITAL GAINS ON REITs (REAL ESTATE INVESTMENT TRUSTS) AND INFRASTRUCTURE INVESTMENT TRUSTS: In last year's Budget, partial pass-through status was given to REITs. This year, the finance minister has tried to rationalise it further by providing capital gains exemption to REIT sponsors at the time of exchange of units. The rental income earned by REITs will be considered as a pass-through and will be taxable in the hands of unit holders. However, the Budget didn't mention anything on dividend distribution tax, which means it will apply. Experts are waiting for the fine print for more clarity.

2) ALLOCATION OF RS 1,200 CRORE TO DELHI MUMBAI INDUSTRIAL CORRIDOR. The announcement for establishing a National Infra Fund of Rs 20,000 crore is also positive for the sector. Connecting each of the 1,78,000 unconnected habitations by all-weather roads will require completing 1,00,000 km roads that are currently under construction plus sanctioning and building of another 1,00,000 km roads.

3) GST TO BE INTRODUCED IN 2016: "The finance minister has announced that the GST will commence from the next financial year and has increased service tax and central excise duty as a preparatory measure. This puts an end to speculation on when GST will become reality," says Puri of JLL India.

4) SPEEDY APPROVALS: Delays in getting clearances lead to construction delays, which increase cost and dampen investor sentiment. "The finance minister's announcement of an expert committee for making pre-existing regulations for expediting approvals is a welcome move. It is a step towards a single-window clearance system. The industry is in dire need of single window clearance mechanism to reduce construction delays," says Surabhi Arora, associate director, Research, Colliers International.

5) NO MORE WEALTH TAX: Scrapping wealth tax, the finance minister has introduced a surcharge of 2% on the super rich with income of Rs 1 crore and above. "This means that a majority of Indians will no longer pay any tax on property ownership and only super-luxury homes will be taxed. This is a big relief for the Indian middle class," says Kishor Pate, CMD, Amit Enterprises Housing Ltd.

"The Budget disappointed the real estate sector with proposal to increase service tax from 12% to 14%. The proposed increases in service tax and excise duty are bound to result in inflation and overall recession in real estate and other segments," says RK Arora, chairman, Supertech.