Budget 2018: 10 points for the Real Estate sector

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After the regulatory and structural reforms of RERA and GST, the real estate sector was speculating high on Budget 2018. With Lok Sabha elections just a couple of years away, the government has thoughtfully designed the budget to provide impetus to crucial sectors such as agriculture, health care, etc of the Indian economy.

Before the rollout of the Budget 2018, government had launched the Economic Survey 2018 in which the importance of real estate for the economy was highlighted. It was reported that about 15 million jobs would be created by the realty and construction sector by the year 2022.  Owing to this, government has necessitated some direct and indirect provisions in Budget 2018 for real estate.

Some of the key points which stakeholders from real estate industry should take a note of:

Direct Impact

  1. NHB, an apex financial institution for housing will setup a dedicated Affordable Housing Fund (AHF) that would invest wholly in the affordable housing segment. This fund would obtain capital from priority sector lending shortfall and fully serviced bonds authorized by the Government of India. Under the ‘Housing for all by 2022’ government has set a target to build 1 crore houses by 2019.
  2. For property transactions, no modification while taxing income from capital gains will be made in case where the variation is not more than the 5 % of the ready reckoner or circle rate. This would help in reducing the time and cumbersomeness of real estate transaction. (Click here to know more about Circle Rates)
  3. Regarding smart cities, the government has so far completed work amounting to Rs 2,235 crore. Smart City mission aims to enhanced livability and holistic development of many Tier 2 and Tier 3 cities .A total of 99 smart cities have been selected at an of Rs 2.04 lakh crore.
  4. This budget has focused highly on the infrastructure development. In terms road, Bharatmala road has already given approval of Rs 5.35 lakh crore. In rail, 600 major railway stations will be developed. Also, expansion of Mumbai transport system and suburban network of Bangalore is focused, hence driving the real estate market of these cities. In terms of air connectivity, 56 unserved airports will be connected through UDAN.

Indirect Impact

  1. It is proposed to tax long term capital gains which exceed Rs 1 lakh for equity and equity related products. This application of tax on equity might make it less lucrative and investors may choose to invest in some alternative assets such as real estate.
  2. The government has also planned to initiate the monetization of selected CPSE (Central Public Sector Enterprises) assets via the route of InvITs (Infrastructure Investment Trust).
  3. It is also proposed to reduce the corporate tax rate to 25% for companies with the turnover of up to Rs. 250 crore. This would help to boost the business activities of micro, small and medium size developers.Also, budget of Rs 3 lakh crore has been allocated to PMMY (Pradhan Mantri MUDRA Yojana). This scheme would provide loans up to 10 lakh to the non-corporate, non-farm small/micro enterprises through various banks and NBFCs. This would serve as a source of working capital for local developers in carrying out their business activities
  4. Government has targeted disinvestment of 1 lakh crore in the year 2018. As we know, enormous land parcels are under these PSUs (Public sector undertakings) and other government bodies, availability or reallocation of the same will boost the realty sector by providing additional land in the space crunched metropolitan cities.
  5. Government has shown their inclination towards blockchain, the technology behind the famous cryptocurrency bitcoin. With land recording being digitalized, blockchain can have significant impact on real estate as an asset (Click here to know more about how blockchain can impact real estate as an asset)
  6. It is also proposed to transform 10 prominent tourist destinations of India to iconic tourism destinations. This would lead to an enhanced tourism attraction as well as revenue. Also, it will provide lucrative opportunities for the hospitality sector.

Pre-budget 2018, there were many expectations from the real estate players such as digital single window clearance, long pending ‘industry status’ to real estate, lower GST on affordable houses, tax incentives or rebates to home loan takers, more liberal laws for REITs, etc. These expectations of realty sector have not been turned into reality. However, it appears that the government has thoughtfully made these decisions, keeping in mind the greater good of the realty sector. Also, it appears that these moves will help government achieve its fiscal deficit target, GDP growth target and target of being one of the most developed economy.

Author Name : Bhavya Gupta