The Budget has brought cheers not only to home buyers but also to the real estate industry as a whole. If you wish to invest in real estate but cannot do so as you do not have a lot of money , you will soon have an option to buy units of Real Estate Investment Trusts (REITs).
The finance minister has cleared the ambiguity surrounding taxation of REITs, removing a big hurdle to their launch. REITs function just like mutual funds and invest in properties that generate income. The units are listed on exchanges and traded like stocks. The price of one REIT unit is expected to be Rs 1 lakh. The minimum subscription amount will be Rs 2 lakh.
These amounts are expected to go down as REITs become popular. The Securities and Exchange Board of India had come out with the draft guidelines on REITs in October 2013. It was supposed to come out with the final guidelines in December last year but did not do so due to the uncertainty over taxation.
The Budget proposes to give REITs pass-through status. This means that the income earned by REITs will be taxed in the hands of investors; the fund will not have to pay tax on it.
"It is the right beginning. We expect the decision to positively influence the market," says Harindra Nagar, managing director, Paras Buildtech. It will not only provide developers access to cheaper funds but also give people a chance to invest small amounts in the real estate market. "The introduction of REITs will provide access to capital markets for income-generating real estate, creating a new financial asset and providing an exit option for those developing these assets," says Rohit Gera, MD, Gera Development. "It will ease liquidity for developers and provide retail investors the benefits of regular income and price appreciation," says Neeraj Bansal, partner and head, real estate and construction, KPMG in India.
BOOST TO AFFORDABLE HOUSING
The Budget has allocated Rs 4,000 crore for affordable housing for urban poor through the National Housing Bank. This will help bridge the demand-supply gap in the affordable housing segment. The foreign direct investment (FDI) rules have also been eased. The minimum built-up area requirement has been reduced from 50,000 sq metres to 20,000 square metres and the capitalisation requirement from $10 million to $5 million for FDI in real estate projects.
"This will attract a lot of foreign money in the sector, which, in turn, will increase avenues for growth," says Sumit Jain, co-founder & chief executive officer, Commonfloor.com. The Budget has also allocated Rs 7,060 crore for building 100 smart cities.
"This will have positive implications for real estate across segments, namely residential, commercial, retail and hospitality. Smart cities, by definition, imply considerable demand for technology-enabled services, and this is a big positive for IT/ITeS companies in India. Significantly, as much as one-third demand for office space emanates from this sector," says Anuj Puri, chairman & country head, Jones Lang LaSalle India.
However, the Budget has not addressed some issues, says Vineet Singh, executive vice president and business head, 99acres.com. Developers and home buyers were expecting steps to increase transparency in project clearances and land acquisition. The real estate regulation Bill, aimed at streamlining processes, has not been touched upon either, he adds.
"The biggest disappointment is that the housing sector has not been given the infrastructure status. Nor has the erstwhile Section 80 I(B) giving tax breaks for affordable housing been reintroduced. They are also no direct tax sops for housing.
The sector will have to depend on an upswing in the economy for things to start moving again," says Pankaj Bajaj, managing director, Eldeco Infrastructure & Properties. The Budget has made big allocations for improving the country's infrastructure, which is a bottleneck in the development of the economy.
For this, the National Highway Authority of India will get Rs 37,850 crore, while Rs 14,389 crore have been allocated for the development of roads under the Pradhan Mantri Gram Sadak Yojna.
The move to increase in tax deduction on home loan interest payments by Rs 50,000 to Rs 2,00,000 will encourage people to buy homes.
"For a retail investor having an existing housing loan, the budget has come as a pleasant surprise. The increase in deduction on home loan interest under Section 24 will give extra cushion to the borrower. The tax sops will not attract potential investors to take fresh housing loans in Tier-1 and Tier-II cities but may boost demand in smaller cities," says Amit Bhatia, director and head, Assets and Business Banking, Deutsche Bank India.