DECODING BUDGET 2024: HITS & MISSES FOR REAL ESTATE
Real estate, accounting for roughly 10% of the GDP, is the nation's second-largest employer after agriculture. As ur- banization increases to 30-35%, the country is progressing from a mid-developed to a developing economy with further growth anticipated in per capita income. Sesha Sai, Managing Director - Central Management, Hyderabad, Savills India expressed his views, “Urban growth is accelerating in our cities and adjacent towns, prompting in- creased government investment in infrastructure to enhance connectivity and encourage transit-oriented development. Although funding has risen by 30% in recent budgets, the latest increment was a modest 10%, reflecting our need to expand beyond the current nine major cities to a network of over 100 well-connected urban centres." Sharing his perspective on the anticipated impact of infrastructure development on supporting the overarching sectors, specifically real estate and construction, Mahabir Prasad Agrawall, Chairman, Kon- cept Ambience, commented, “The recent interim budget by the Indian government focuses on digital infrastructure, middle-class housing, foreign investments, and innovative systems. Prioritizing sustainability, the budget has emphasized on funds for conservation and renew- able energy. Consequently, the real estate sector is expected to grow, raising its GDP contribution from 9% to 15% within three years.” Stating a different viewpoint on the numerous omissions that appear evident within the anticipated budget, amidst escalating house prices and construction costs, with even historically affordable markets like Hyderabad witnessing a rise in housing expenses and reduction in sizes. Rajasekhar Reddy, President, CREDAI Hyderabad, said, “Land and construction costs are escalating due to government auctions and GST on raw materials, leading to higher fees across the board. Devel- opers believe that the Government of India should step back from real estate to avoid multiple taxation layers, advocating instead for a single clear tax bracket. There is no tax benefit distinction between afford- able and luxury housing, creating further financial burden. To support affordable housing, India should consider innovative development models such as land pooling, rev- enue sharing, or PPPs and ensure essential services are in proximity. Governments must revisit their strat- egies to facilitate housing within their social responsibilities, using instruments like the PM Awas Yojana and reformed tax policies." Highlighting the need for governmental intervention to address the inefficiencies and dual taxation, affecting both supply and demand, Amit Jain, Partner, Price Waterhouse & Co LLP said, “Regarding direct taxes, the escalating interest rates necessitate an enhancement of the interest deduction limit from Rs. 1-2 lakhs to Rs. 5 lakhs, and a revision of the exemption threshold for affordable housing beyond Rs. 45 lakh is imperative. In metropolitan areas, property prices render the current affordable housing exemption cap unrealistic, and adjustments accounting for inflation since 2017 are strongly advised. The real estate sector calls for a rationalization of GST, as the cumulative burden of 18% on inputs coupled with 5% on outputs unduly inflates construction costs, hampering the viability of af- fordable housing projects. Besides, in the commercial sector, a property owner has to bear taxation on rentals as well as construction materials, leading to dual taxation.” Sharing his perspectives on the delayed conferral of industry status to this sector and how the govern- ment could enhance its access to more competitive financial resources, Nand Kishore, Managing Director, Ramky Estates, said, “The real estate sector's call for infrastructure status is primarily to benefit from associated incentives such as tax breaks and easier access to affordable funding, crucial for its high-cost, long-term projects. Despite limited progress, like inclusion for External Commer- cial Borrowing (ECB), the sector still struggles with high borrowing costs and liquidity issues that hinder the development of affordable housing. Elevating real estate to infrastruc- ture status would expedite growth, enhance quality housing availability, and address institutional voids critical to the nation's housing requirements.” Concurring to the thought, C Shekar Reddy, Chairman, CII Tel- angana, Past National President, CREDAI, added, “Over the past few years, Hyderabad has experi- enced growth despite challenges like the pandemic. In recent years, Hyderabad has not only witnessed a significant uptick in IT sector employment, with an average of 150,000 new jobs annually, but also anticipates an additional 2 million new jobs in manufacturing within the next five years. For these work- ers, the government must address affordable housing and taxation policies to support the economic growth, as our future hinges on accessible housing solutions be- yond the current market's focus on luxury.” HARMONIZING PROGRESS AND NEEDS The surge in development and urbanization is resulting in a sub- stantial environmental footprint due to the extensive use of materials like cement and steel. Despite not being the primary contributors to this issue, nations such as ours experience a disproportionate impact, underscoring the urgent need to harmonize progress with environ- mental conservation. Sesha Sai said, “Despite the presence of basic environmen- tal awareness and adoption of measures, significant progress and innovation appear limited, exemplified by the development of solar-powered air conditioning. However, the challenge persists in achieving substantial impact with sustainable development at a larger scale.” Rajasekhar Reddy added, “India has ascended to the second rank globally in terms of the green build- ing footprint, with the Indian Green Building Council (IGBC) recording 12 billion square feet across 12,000 projects. IGBC's GreenPro label certifies over 8000 green building prod- ucts, evidencing a significant shift towards sustainable construction, including prestigious government and private sector projects. Several state authorities are promoting real estate development by offering substantial incentives such as additional Floor Space Index (FSI), and reductions in building permit fees and property taxes. Compulsory green certification for larger projects is advocated, with our state leading the integration of green standards into building regulations, contribut- ing to energy efficiency and Vastu compliance." The green building sector has notably advanced as an independent field, by practicing waste reduction and recycling. The green building sector has notably advanced as an independent field, by practicing waste reduction and recycling. Talking about the current policy-level initiatives to promote these practices industry-wide, Nand Kishore said, “The construction sector, a significant contributor to carbon emissions, is beginning to repurpose demolition waste into building materials such as tiles and aggregates. However, for these sus- tainable practices to become wide- spread, governmental incentives and support for necessary logistics and scale are imperative.” C Shekar Reddy added, “It is essential to acknowledge that ma- terials recovered from construction demolition are being repurposed in landfills to construct buildings. In ad- dition, as the government continues to introduce more incentives and support, we anticipate a significant increase in green activity within the real estate and construction seg- ments.” Mahabir Prasad Agrawall stated, “Developers should explore recycling ventures, with potential government support for sustainable housing demonstrations using methods to bypass traditional utilities, and architects are achieving significant heat reduction in homes through strategic shading and planting.” Amit Jain expressed, “To truly progress in building sustainably, the Indian government must visibly incentivize the industry to counteract the higher costs, propelling a genuine movement toward environmental responsibility.” Presently, it is estimated that there is a shortfall of 10 million homes in the northern region, with projections suggesting this number will increase to 13 million within a decade. Discussions are ongoing regarding fiscal incentives and avoidance of double taxation to stimulate construction in the mid-segment housing market- Sesha Sai Today we have about eight or nine large cities, metro cities, but for the scale of this country this is not good enough. We need to have probably 100 cities which we can count on. That is where infrastructure that government has proposed can give the right push. C Shekar Reddy It is difficult to build affordable housing if 18% of the input cost is getting into your cost cycle and further you are paying 5% GST on the output. That's a 23% delta which is going into your cost. Therefore, there needs to be rationalization of GST for the real estate sector going forward - Amit Jain It is my belief that the government's role should be that of an enabler rather than a builder, with a focus on fostering financial institutions. Instead of selling off the lands in open auction and making the lands non-viable for affordable housing, they should go in a barter mode or a revenue sharing- V. Rajasekhar Reddy NPAs in real estate are much lower than many other industries. But somehow real estate has been painted in a very different colour.Giving an infrastructure status will really help this industry to grow at a faster pace and deliver to the sections of the society who are actually in need- Nand Kishore Perhaps in the last 10 years, for the first time, we are seeing a steadfast focus of the government on the development of highways, roads, metros and airports and other connectivity infrastructure. All these are going to affect the real estate sector in a good way - Mahabir Prasad Agrawall
Tags : Sesha Sai Savills India Mahabir Prasad Agrawall Koncept Ambience C Shekar Reddy CREDAI V Rajasekhar Reddy CREDAI Hyderabad Amit JainPrice Waterhouse & Co LLP Nand Kishore Ramky Estates