UNION BUDGET 2014-15 Analysis – Real Estate Sector

I. Industry Scenario:

Real estate sector plays an important role in the Indian economy, contributing around 6-7% to the GDP of India and it also one of the highest employment generating sectors. The real estate in India is highly fragmented, capital Intensive in nature and is yet to receive an industry status. The sector has close linkages with the economy and therefore is highly cyclical in nature. Indian real estate sector has been on a roller coaster ride since 2005 along with the government’s policy to allow foreign direct investment and has been riding through many highs and lows since then. However, the demand for the real estate sector was lethargic post global economic slowdown in 2008.

II. Previous Budget Policies:

Key policies announced during the union budget for 2013-14 were allocating funds to rural housing schemes and urban housing schemes to boost fund availability, providing additional interest deductions to first home buyers to boost new home sales, developments of the industrial corridor between Delhi-Mumbai and develop 7 new cities and 2 smart industrial plans which will provide impetus to real estate development in the long term. However, none of the policies have had an impact on short term issues like lack of demand and clarity on approval clearances, etc.

III. Expectations from Budget 2014-15:

Key Challenges faced by Indian real estate sector in the current scenario are lack of clear land titles, absence of industry status, lack of adequate source of finance, approvals and procedural difficulties, higher interest costs, rising material and manpower costs due to inflation. Favorable policy developments expected in the union budget 2014-15 which will help in have access cheaper funds, faster clearances of approvals, revamp demand in the industry etc. are as follows:

 

• IInfrastructure status to be accorded in Real Estate/ Housing Sector which would help to raise funds at lower interest rates.

• Incentives for low cost housing and township projects in form of increased credit availability, Interest Subvention and Tax rebate.

• Procedures for introduction of real estate regulatory bills to bring transparency in the sector. 

• Increasing exemption limit of principal repayment limit to Rs.3 Lakhs and separating it from other 80c exemptions.

•  Increasing exemption on interest on home loan u/s 24 of Income tax act

• Guidelines on real estate investment trusts which would help to meet the funding requirement of the industry.

IV. Union Budget 2014-15 Proposals and Impact:

Budget Proposals	Impact on the Industry
Incentives for Real Estate Investment Trusts (REITS) Complete pass through for the purpose of taxation.  Introducing Infrastructure Investment Trusts for infrastructure projects similar to REITS	Very positive Both the instruments will attract long term finance from foreign and domestic sources for real estate sector.
Increasing Basic Exemption limit to 2.5 Lakhs, 80C Exemption limit to 1.5 Lakh, interest deduction u/s 24 to 2 Lakhs	Very Positive Increase in disposable income and direct benefits on interest on housing loan augurs well for real estate industry
Provided Rs.7060 crore to develop 100 smart cities,  Allocate for National Housing Bank (NHB) increased to Rs.8000 crore for rural housing scheme  Allocation of Rs.4000 Crore thru National Housing Bank (NHB) for cheaper credit to Low cost affordable housing	Positive Although the funds allocated may not be very significant compare to actual want of funds to develop new smart cities, however this shows government Endeavour to create new cities to fulfill the requirement of urban economic growth.