Investment-friendly budget to spur real estate growth

By Vinod Behl,

The 2014-15 budget is both positive and promising that focuses on reviving the sentiment of property buyers and investors and promoting investment with a view to give fillip to construction and housing sector, a significant contributor to GDP.

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For the real estate sector, this progressive budget is very much on the expected lines and its foundation was laid few months before the Lok Sabha polls during the annual meet of CREDAI in New Delhi where captains of
this apex body of real estate developers, neglected by the policy paralysis of the UPA, put their weight behind the Narendra Modi-led BJP. And Venkaiah Naidu, the present union urban development and housing minister who was present, declared the BJP’s open support to the real estate sector.

And this year’s budget clearly shows that the BJP-led NDA government has lived up to its promise. The budget reflects the government’s concern and priority to improve the investment climate with a view to stimulate growth. In a far reaching policy decision, the budget has met the long-standing demand to liberalise FDI norms in the construction sector by reducing the built- up area requirement from 50,000 sq mts to 20,000 sq mts and the minimum capitalisation requirement from $10 million to $5 million. This will help mid-size and small developers get better access to FDI, in turn giving a boost to affordable housing. And, to especially boost low-cost housing, exemption has been made for the built-up area and capitalisation requirements. Further, considering that the maximum shortage of housing is in the low-cost segment, the allocation of Rs.4,000 crore to the National Housing Bank to promote affordable housing is quite significant. And, by bringing housing for economically weaker sections and slum redevelopment under CSR, the budget has given the impetus to the supply of affordable housing to achieve the goal of Housing for All by 2022.

Yet another significant initiative to boost investment is to introduce REITs with tax incentives that will unlock a new source of financing for cash-strapped developers through participation of retail investors. PE investors are upbeat as they can now find an exit route in the booming stock market and even pension funds like Canadian Pension Plan Investment Board (CPPIB) are directly deploying funds in real estate assets.

While focusing on real estate development by way of boosting supply through increased investment, government has fully recognised that infrastructure is the key to real estate growth. The allocation of huge funds for urban infrastructure projects, including Rs. 51,000 crore for development of national and state highways besides rural roads, development of the Metro rail in cities with a population of 20 lakh and above, measures to revive SEZs, together with investment of Rs.7,060 crore in 100 smart cities and setting up of seven smart industrial cities are significant initiatives to boost urban development.

The twin measures of increasing the home loan interest exemption limit by Rs.50,000 and raising the income tax limit by Rs.50,000 are being seen by home developers as major incentives to boost housing the market. They now expect the RBI to start reducing home loan rates and this combination of tax incentives and lower home loan rates will give much the needed fillip to the housing sector.

The budget has, however, not addressed the crucial issue of granting infrastructure status to real estate – a key demand by the sector. It is mainly because there is a thinking in the government that industry status should follow only after the sector is regulated. The government plans to address this issue by bringing in the long-pending Real Estate Regulatory Bill in parliament. Several other reform measures in the coming months to bring in transparency to further boost the confidence of investors will follow.

In the backdrop of projects worth Rs.6.26 trillion shelved, abandoned or stalled in 2013-14, project implementation to boost investment and revive growth remains on top of the government’s agenda in line with BJP’s poll promise of creating a conducive and enabling environment for doing business. Already, the new government has cleared big-ticket investment projects worth Rs.21,000 crore held up for decades. Similarly, road projects with investments of Rs.40,000 crore, stuck for a long time, have been given the green signal. In the coming months, one may expect several investor-friendly policies like liberalising ECBs, single- window clearance, credit rating model of residential real estate projects to channelise investments in housing and an escrow account model through levies on cement, steel and the like to fund affordable housing.

There has been a lot of pent-up demand for investment with the right policy initiatives holding the key to drive FDI. And with the Modi government embarking on administrative reforms to provide better governance besides investor-friendly policy initiatives, its mantra for investors is to stop fearing volatility and think long-term. And, as a right beginning has been made with this budget, both domestic and foreign investors have a reason to buy Modi’s promise.

(Vinod Behl is editor of Realty Plus, a leading real estate monthly. The views expressed are personal. He can be reached at [email protected])