Impact on Union Budget 2014-‐15 on Real Estate Industry
CA Vinit V Deo Chairman & Managing Director
Financing in the Real Estate Sector
§ To provide necessary incen9ves for REITs. As an innova9on, a modified REITS type structure for infrastructure projects is also being announced as Infrastructure Investment Trusts (InvITs), which would have a similar tax efficient pass through status, for PPP and other infrastructure projects. Adequate REITs will cut pressure on exis9ng bank lending.
§ Na9onal Housing Banking program; to set aside Rs. 8000 crore for the program for Rural Housing.
§ To encourage development of Smart Ci9es, which will also provide habita9on for the neo-‐middle class, requirement of the built up area and capital condi9ons for FDI is being reduced from 50,000 square metres to 20,000 square metres and from USD 10 million to USD 5 million respec9vely.
Posiview Insight: This will improve liquidity in the sector and will open new avenues of financing.
Incen@ve to buyers
§ Raises 80C investment cap to Rs 1.5 lakh.
§ Hikes housing interest rate deduc9on limit to Rs 2 Lakh.
§ No change in tax rates. Income tax exemp9on hiked by Rs 50,000 to 2.5 lakh.
§ Income tax exemp9on hiked by Rs 50,000 to 2.5 lakh.
Posiview Insight : These tax deduc>ons would mean that a person can get an addi>onal deduc>on of Rs 1.50 lakhs in his taxable income which means a saving of Rs 45,000 pa or Rs 3750 pm in monthly outgo at the highest slab rate. This can increase the housing budget by Rs. 4 Lakhs which is a 25-‐33% increase for the affordable segment houses in the range of Rs 20-‐25 Lakhs.
Affordable Housing
§ Changing rules governing low cost housing.
§ Mission for low cost housing proposed to incen9vize development of low cost housing; Rs. 4000 crore announced.
§ Projects which commit at least 30 per cent of the total project cost for low cost affordable housing will be exempted from minimum built up area and capitaliza9on requirements, with the condi9on of three year lock-‐in.
Posiview Insight: The tax benefits combined with the opening of the sector completely for Foreign Direct Investment should see significant ac>vity in this space in the coming year especially in view of the shortage of almost 1.8 cr houses as per the Economic Survey.
Urban Development
§ To spend Rs 7,060 crore for 100 smart ci9es, as satellite towns of larger ci9es and by modernizing the exis9ng mid-‐sized ci9es. To provide the necessary focus to this cri9cal ac9vity.
§ Urban renewal will address drinking water, use of recycled water, solid waste management, digital connec9vity; 500 habitats supported.
§ FM announces development of Metro rails in PPP mode; Rs. 100 crore set aside for metro scheme in Ahmedabad and Lucknow.
§ Slum development to be included in Corporate Social Responsibility ac9vi9es.
§ Proposes 50000 crore for urban infra projects.
§ Proposes Metro projects in ci9es with 20 lakh people.
Posiview Insight: This comprehensive package will give a new lease of life to the Ci>es which are on the suffering due to crumbling infrastructure and thus give a boost to the real estate sector and provide viability gap funding.
Rural Development
§ Aiming at total sanita9on for all households by 2019.
§ “Deen Dayal Upadhyaya Gram Jyo9 Yojana” for feeder separa9on will be launched to augment power supply to the rural areas and for strengthening sub-‐transmission and distribu9on systems.To provide Rs 500 crore to boost rural power infrastructure.
§ Rs. 3600 crore set aside for Na9onal Rural Drinking Water.
§ Pradhan MGSY has a massive impact on rural development; sets aside Rs. 14,389 crore for this.
§ Rural Fund corpus will raise to 30,000 crore in FY15. Shyama Prasad Mukherji Rurban Mission will be launched to deliver integrated project based infrastructure in the rural areas, which will also include development of economic ac9vi9es and skill development.
Posiview Insight: The Government’s target to revive the rural economy of India will lead to a balanced growth and relieve the pressure of migra>on to the ci>es.
Tax Reforms
§ To approve Goods & Services Tax by end of year. To approve Goods & Services Tax by end of year.
§ Propose to strengthen authority on Advance Tax Rulings.
Posiview Insight: Government’s decision to not implement the Direct Tax Code in its present draconian form and push to implement the GST by year will take India to a new era of the tax payer friendly administra>on and result in beVer compliance.
Industrial Real Estate
§ Effec9ve steps to be taken to revive SEZs.
§ Announces Rs. 200 crore for 6 more tex9le clusters in Rae Bareily, Lucknow, Surat, Bhagalpur.
§ Proposed an alloca9on of Rs. 5,000 crore for the fund for the year 2014-‐15 for urgent need for scien9fic warehousing.
§ Ini9al corpus of Rs. 100 crore for development of industrial corridors for the smart ci9es.
Posiview Insight: The new Government’s thrust on reviving manufacturing growth as a key driver of na>onal economy will also create opportuni>es for Real estate developers to enter the Industrial development segment.
Infrastructure Development
§ The budget has allocated a total of Rs 37,880 crores towards the NHAI for the construc9on of the highways, and an addi9onal Rs. 3,000 crores to boost road connec9vity in the North East. It has targeted comple9on of 8,500 Kms of Na9onal Highways.
§ The development of 16 new ports has been proposed at the outlay of Rs. 11,000 crore.
§ Long Term loans for Infrastructure projects without restric9ons like CRR, SLR/ priority sector lending norms.
Posiview Insight : Infrastructure development will act a major catalyst to Real Estate development.
Ca Vinit V Deo
Chairman & Managing Director
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