Budget 2015: Does It Do Enough For Real Estate?

Many have lauded the Union Budget 2015 unveiled by the Modi government, but many in the real estate business feel that the sector has seen only half-hearted measures from the policymakers to boost growth. The real estate sector was looking forward to active support in the areas of affordable homes and smart cities. But they were not the topmost priority on the government's mind this financial year.

Here's how Budget 2015 will affect ongoing projects in India:

Today's pain, tomorrow's gain

Though broad directions were given for the plan on improving rural and urban residential homes requirements by 2022, there was no direct incentive given to the homebuyer. No policies or benefits were announced to get the home sector out of the dumps. The Budget 2015 highlights have emphasised the government's plans for infrastructure and sustainable growth pattern, but these are all for the long-term benefits.

Making affordable homes not so affordable

In addition to the dilemma the residential sector already faces, experts feel that the approximate 2% service tax increase will further affect the buyers. This will start the vicious cycle where the higher costs of construction will make the affordable homes option “not-so-affordable” to the buyers. The potential buyers in turn will refuse to invest in property in India. This slump in sales will be the last straw for the already flailing market.

Expected tax breaks not delivered

The golden period for the realty sector was probably the years 2008-2009 when the national savings rate was at a high of 36.9%. There were great expectations from the Budget 2015 to increase individual savings. While the lower repo rate by the RBI was a welcome break, the residential sector could have used a boost from the government as well. Tax breaks and additional rebates to reduce the burden of home loan EMIs would have worked wonders to revive the residential sector.

Indirect benefits to the common man

Budget 2015 has taken some measures to ensure that the real estate sector gets some relief:

1. In this year's budget, Real Estate Investment Trusts (REITs) have been granted an exemption from capital gains tax, which will allow them to establish themselves in the country. When more funds are pumped into the system, the real estate sector will be able to function more efficiently.

2. The government has announced that an expert committee will co-ordinate all the pre-regulations for approval as a step towards creating a single-window in the future. By working towards introducing a single-window clearance mechanism, delays in getting approval for construction projects can be greatly managed. The delay in the completion of the projects dampens the enthusiasm of the investors while also increasing the construction costs substantially.

3. By replacing wealth tax with a surcharge of 2% on those with income of Rs. 1 crore and above, only the super rich will be taxed now. Relief has been given to the middle-income group who can now look at property ownership as an investment possibility.

4. The concentrated effort on infrastructure development such as the Mumbai-Ahmedabad industrial corridor is sure to increase connectivity to unconnected habitations as well. This will make more land available for the real estate sector, which is sure to cater to the increasing residential requirements of the rural and urban population of the country.    

The biggest disappointment for the residential sector has been the failure of the budget to re-introduce Sec 80-IB for low-cost homes, incentivise affordable homes and grant real estate the same status as infrastructure to increase liquidity in the sector.