BUDGET 2022: WHAT’S IN IT FOR REAL ESTATE?
Stock markets gave a thumbs up on the day of the budget announcement on February 01 given the increased spending outlay on infrastructure and housing, easier tax compliance measures and tax relief for various sectors, which are bound to have a multiplier effect on the economy. The focus on urban planning by supporting the states in areas like modernization of building byelaws, Town Planning Schemes and Transit Oriented Development will also aid the industry significantly. The thrust on ease of doing business (over 25,000 compliances were reduced and 1486 Union laws have been repealed) and the expansion of the scope of PARIVESH will also positively impact the economic recovery. However, as always the success of the budget will lie in its execution. KEY FEATURES IMPACTING REAL ESTATE The budget is capital expenditure oriented and immense investment has been allocated for the expansion of roadways and logistics networks. Also, a high-level committee will be formed for making recommendations for urban development growth, as per the budget. The move to appoint a high-level panel for urban planning with endowment fund of Rs 250 crore will prove pivotal for the real estate sector as both the emerging urban landscape and decaying city infrastructure need a complete overhaul. Furthermore, the Special Economic Zones Act will be replaced with new legislation that will enable the States to become partners in ‘Development of Enterprise and Service Hubs’. The industry expects the new policy to ensure domestic companies be able to utilise the SEZ infrastructure. “The New SEZ Act will be significant booster for the commercial real estate and can be seen as an enabler for inducing institutional capital flow in the asset class. Announcement of Gati Shakti framework that will focus on the development of multimodal logistic parks and cargo terminals can be noted as great initiative for the warehousing sector. The focus of transit oriented infrastructure development will definitely pave way for more employment hubs thereby, unlocking the residential and commercial build up potential in the key micro markets of a city, “said Dhaval Ajmera, Director, Ajmera Realty. “The budget has emphasized the need to nurture mega-cities while also focusing on Tier 2 and Tier 3 cities. The support given to infrastructure will also create job opportunities for Tier-II and Tier III cities, leading to growth in population and higher demand for residential as well as commercial projects,” added Varun Gupta, Director, Ashiana Housing The budget also grants infrastructure status to data centres that will enable the data centres industry to avail long & cheap credit financing in order to foster competitiveness to become a global data centre hub. Another major announcement was of putting environmental clearances under one window system. “Single window portal for green clearances is a step to promote ease of doing business in augmenting sustainable development along with special mobility zones for electric vehicles,” expressed Dr. Niranjan Hiranandani, National Vice Chairman -NAREDCO and MD Hiranandani Group “The extension on concessional tax rates for new manufacturing companies will help attract investment into strategically located industrial parks that are ideally positioned to enable speedier time-to-market. The introduction of a new legislation that will replace the Special Economic Zones (SEZ) Act, together with proposed reforms in customs administration of SEZs, will enhance export competitiveness, thereby supporting industrial activity. Additionally, Infrastructure status to Data Centers will enhance the fast-evolving digital ecosystem in India,” added Arvind Subramanian, MD & CEO, Mahindra Lifespace Developers Limited. Government has further committed to building 80 lakh new houses this fiscal. It is a major promise of Modi. A package of 48,000 crore, is a booster for the affordable housing, but a standard definition of 60m and 90m affordable home would have given a bigger push to the entire housing industry. “In 2022-23, 80 lakh households will be identified for the affordable housing scheme and Rs. 48,000 crore allocated for PM Awas Yojana. This together will boost the affordable housing segment and help to achieve the Prime Minister's vision of Housing for All. Also, the 60,000 houses to be identified as beneficiaries for PMAY in rural & urban areas will ensure that more and more homebuyers get to avail this benefit,” commented Sandeep Runwal, Managing Director, Runwal Group Moreover, introduction of ‘Digital Rupee’ using blockchain technology by the RBI is expected to result in a structured approach and bring in transparency to transactions. Mitul Shah, Head of Research, Reliance Securities agrees, “Introduction of digital currency by RBI through blockchain and similar technology would bring India at par with other global giants on the digital currency platform. Taxation on virtual assets will also make equity more attractive, especially to the millennial. More clarity on digital currency will be available once the detailed framework would be ready in the next few months.” M.R. Jaishankar, Chairman & Managing Director, Brigade Enterprises Ltd was of the view, “There are many positives, though not much for our real estate sector and the middle class. However, budget 2022, has laid emphasis on building a road map for a strong India to reach a 5 trillion dollar economy. ECLGS too is a very welcome relief to the much-affected MSMEs and hospitality sector.” THE SCOPE OF IMPROVEMENT The budget 2022 has significant direct and indirect booster shots for the real estate sector. However, it has also missed some critical expectations. Most importantly, as with any budget, the results are dependent on what’s in the fine print and what is the implementation plan. Real estate experts share their disappointments and unfulfilled expectations that would have otherwise made the budget more impactful for the realty and building & construction sector. “To fund infrastructure development and other welfare schemes, the government needs to encourage more private players to join hands and bring in the capital as well as technical expertise. It is also advisable to have a stable policy regime so that more foreign investment could flow into the country,” shared Dr. Harish Sharma, ED, Rudrabhishek Enterprises Ltd. The government must streamline tax rates and minimise administrative barriers. Disposable income is a substantial constraint on demand so personal tax relief must be addressed by revisiting the tax slabs and also increasing the deduction limit under Section 80C.The real estate sector will benefit from revised income tax slabs that reduce overall tax expenditure. Expanding the availability of income tax deductions for homebuyers can incentivise new buyers and widen the market opportunity Also, it would have helped the building materials industry, if the GST Rate on cement was reduced from 28% to 18% and fuels especially natural gas was considered under GST,” said Rakesh Reddy, Director, Aparna Constructions & Estates Private Limited. “On the personal income tax front, despite the hope and expectations by the middle-class taxpayers to increase the exemption limit, deductible allowances and rate brackets, the finance minister has decided to maintain a status quo. It has been proposed to levy the surcharge on long-term capital gains uniformly at 15% for all types of capital assets. The budget has also introduced several measures to reduce the compliance burden, encourage voluntary compliance and reduce litigation. The disappointing feature of the budget is the continuation of the protectionist trend and continued differentiation in import duties,” mentioned Dr M Govinda Rao, Chief Economic Advisor, Brickwork Ratings. “The sector was expecting more in terms of incentives to boost sales and to fulfil the dream of Housing for All. While the government’s focus remains on affordable housing, the industry was hopeful of incentives under sections 24(b) and 80IA 2 (a) and (b). & on Bringing Capital gain tax on par with Equities,” expressed Rajan Bandelkar, President, NAREDCO. “As a creator of and service provider to senior living communities, we are disappointed that none of the initiatives announced bring succour to the demographic we serve – senior citizens. There were no announcements about making homes in senior living communities more affordable or any rationalisation of the high 18% GST levied even as the collection for January 2022 touched a record high. That said, over the past many decades, we have gotten used to what can best be described as “tinkering” of the direct and indirect tax structure, or impex subsidies, which are industry specific. But while these measures were welcomed by the sentiment-driven stock market, they make no real impact in the long run.” said Mohit Nirula, CEO, Columbia Pacific Communities. OVERALL A GOOD REPORT CARD Summarizing the overall direct and indirect positives for the realty sector, the experts believe the budget has impacted the overall sentiment positively and Indian real estate sector being one of the most robust sectors of the economy will find ways to resume its demand and growth. According to Dr. Arun Singh, Global Chief Economist, Dun & Bradstreet, “Significant surge in the allocation towards capital expenditure, infrastructure investment and proposed implementation of Multimodal Logistics Parks are going to provide required impetus to construction sector. For promoting affordable housing for middle class and economically weaker sections in urban areas, the Central government will work with the state governments for reduction of time required for all land and construction related approvals. Vibrant village programme which include activities such as construction of village infrastructure, housing, tourist centres, road connectivity, provisioning of decentralized renewable energy, direct to home access for educational channels, and support for livelihood generation is likely to help sector going forward. Further, the Ken-Betwa River linking project will prove to be beneficial.” Abhijit Malkani, CEO, ESR India celebrating the Union Budget 2022 focus on PM Gati Shakti National Master Plan for Multi-Modal Connectivity stated, “The addition of 25,000 km of national highways, 100 new cargo terminals, and the development of urban metro systems will meaningfully aid the logistics and warehousing industry, facilitating better reach and reduced costs. We also welcome the ‘One-Nation One-Registration Software’ initiative, it will significantly promote uniform processes for registration of deeds & documents, aiding the developers of large-scale Industrial and Warehousing projects. Furthermore, the increased allocation and focus on renewable energy to boost the fiscal capacity of states is laudable. Infrastructure status to data centres is a great initiative to enable easy financing for this sector. These announcements, along with the continued focus on capital expenditure, will spur the growth of the logistics sector in the country.” Gopalakrishnan Padmanabhan, Managing Director – Southeast Asia & Middle East, GBCI termed the Union Budget for FY 2022-23 as growth oriented.” It is a good shot in the arm for the economy as it focuses on capital expenditure without leaving behind the nation’s commitment to transition to clean and green energy. From a real estate point of view, the continuance of the PMAY scheme to provide affordable housing to 8 million identified beneficiaries is a welcome decision. Additionally, the issuance of sovereign Green Bonds for mobilizing resources for green infrastructure will encourage public sector projects in reducing their carbon intensity.” Shubham Jain, Chief Business Officer, Real Estate and Infrastructure, CredAvenue shared his opinion, “One of the key goals outlined by the government through this budget is to rely on the virtuous cycle starting from private investment, with public capital investment acting as an enabler for private investment. This is expected to act as a force multiplier where Capex growth for the next phase would be funded by both public and private capital. Probably the most important theme of the budget has been the big public investment for modern infrastructure. The PM Gati Shakti program would largely drive this. Under this program, key segments such as Roads, Railways, Airports, Ports, Mass Transport, Waterways, and Logistics Infrastructure are expected to get focussed attention to drive forward the infrastructure agenda. With the Government planning to use innovative financing models to fund these projects, we expect an adequate supply of required long-term capital into the infrastructure story.” WHILE THE INITIATIVES TAKEN ARE A POSITIVE STEP FOR THE REAL ESTATE SECTOR AND CRITICAL TO ITS REVIVAL, FURTHER MEASURES REMAIN TO BE UNDERTAKEN THAT CAN BOLSTER DEMAND MOVING FORWARD. ONE OF THE BIGGEST POSITIVES OF THIS BUDGET IS THE THRUST ON INFRASTRUCTURE DEVELOPMENT AND PM AWAS YOJANA THAT WILL NOT ONLY BOOST THE INFRASTRUCTURE SECTOR BUT ALSO ALLIED INDUSTRIES LIKE BUILDING MATERIAL SECTOR.
Tags : REAL ESTATE BUDGET 2022 Dhaval Ajmera Director Ajmera Realty Varun Gupta Director Ashiana Housing Dr. Niranjan Hiranandani National Vice Chairman -NAREDCO and MD Hiranandani Group Arvind Subramanian MD & CEO Mahindra Lifespace Developers Limited Sandeep Runwal Managing Director Runwal Group Mitul Shah Head of Research Reliance Securities Dr. Harish Sharma ED Rudrabhishek Enterprises Ltd Rakesh Reddy Director Aparna Constructions & Estates Private Limited Dr M Govinda Rao Chief Economic Advisor Brickwork Ratings Rajan Bandelkar President NAREDCO Gopalakrishnan Padmanabhan Managing Director – Southeast Asia & Middle East GBCI Shubham Jain Chief Business Officer Real Estate and Infrastructure CredAvenue Dr. Arun Singh Global Chief Economist Dun & Bradstreet Mohit Nirula CEO Columbia Pacific Communities Abhijit Malkani CEO ESR India