Indian Real Estate Budget in 2015 - Full Analysis

Budget 2015/16 – Analysis of the Key Fundamentals Outlined for Real Estate.

When Indian Finance Minister Mr. Arun Jaitley was about to announce fiscal Budget on February 28, he was least oblivious on his mind about the mounting expectations from millions of people across India and worldwide. Eyes were glued on TV screens; parliamentarians watching Mr. Jaitley closely while real estate companies kept on pinning high hopes whether the budget will spell positive revival for the cash-starved real estate. Under such circumstances when expectations were intensely high, Mr. Jaitley’s budget held extreme importance; particularly for the Indian real estate industries, it meant a lot.

Now that Union Budget 2015-16 has been announced, it received mixed reactions from people belonging to different political and financial quarters. In this context, the blog carries out post budget 2015-16 analysis and studies the key fundamentals outlined in the budget for Indian real estate.

Union Budget 2015/16 – The Welcome Steps Taken By Government

• Capital gains regime was rationalized (reduced) by the government for the sponsors associated with (recently-formed business organizations) REITs and INViTs.
• The budget allocated Rs 14000 crore to build 6 crore homes – 2 crores in urban areas and the rest in rural areas under government’s mega housing scheme, ‘Housing for all by 2022’.

Union Budget 2015/16 – What Government Should Have Addressed In The Budget?

• While much emphasize was given on government’s ambitious housing scheme ‘housing for all by 2022’ the budget doesn’t say anything about Sardar Patel Urban Housing Mission in terms of how much fund will be allocated for its development, locations and its scheduled completion.
• The budget sounds unfriendly for residential real estate market as it should have reduced home loan interest rates to give residential realty market an impetus for growth.
• To tackle the alarming housing shortfall due to the factors such as existing indirect taxes, expensive borrowing rates (for both developers and buyers) and stamp duty, the budget was expected to offer more incentives for residential realty. The omission of the same is one of the biggest drawbacks for the desired expansion of Indian realty market.

Union Budget 2015/16 – Analysis of the Rationalized Capital Gains on Real Estate Investment Funds

Government’s decision to make REITs (Real Estate Investment Funds) a reality for investors and real estate players in India has been received with much enthusiasm. The budget proposed ‘pass through’ status for the accrued rental income from real estate properties directly held by REIT. It was meant to boost domestic and cross border investment flows in real estate and infrastructure sectors. In simple words – if developer transfers property from its main company to the company/entity listed in REITs, there was taxable capital gains on such transference, which NOW has been exempted or rationalized in the budget.

Previously, there was a proposal that made it mandatory for investors and sponsors to pay tax. Now there will be no such a provision requiring sponsors to pay tax (except the investors). The proposed tax incentives on capital gains for sponsors will inspire sponsors launch their properties with REITs, an indirect sign to boost growth of realty sector.

Union Budget 2015/16 – Analysis of the Allocated Rs 14000 Crore for ‘Housing for All by 2022’ Scheme

This is certainly one of the factors deemed necessary to expand the growth of Indian realty sectors. Hailed as a transformative agenda of the NDA government, the budget takes significant initiative in allocating Rs 14000 crore to build six crore homes under government’s ‘housing for all’ scheme.

If you remember, PM Modi chaired a review meeting in June 2014, saying every family in India will have its own pucca (brick-built) house with basic amenities by the time country completes 75 years of its independence. Therefore, the granted Rs 14000 crore funding to build six crore affordable homes signifies government’s serious stance on fulfilling ‘housing for all’ mission.

Union Budget 2015/16 – Areas Addressed in the Budget

Booster for infrastructure development: Union budget 2015-16 eyed on rapid infrastructure development for irrigation, railways, highways and other sectors. For this, the budget outlined tax free infrastructure bonds considered helpful in revitalizing the proposed development of the infrastructure sectors. Infrastructure creation was the significant emphasis in the budget, and that is why government announced launch of National Investment and Infrastructure Fund (NIIF) with initial amount of Rs. 20,000 crore to enable infrastructure companies leverage the allocated funds for infrastructure growth.

Union Budget 2015/16 – Expectations Unfulfilled or Not Considered

• First of all, the union budget failed to provide clear understanding about the prospect of government-initiated Smart Cities. No specific details were provided to define the proposed Smart Cities. Also, the government didn’t act as promised with regards to housing for all by 2022 mission, as there is lack of direction regarding concrete measures to be taken to boost the affordable housing mission of the government that it announced in 2014.
• The budget 2015 was expected to provide incentives for affordable housing sector as a remedial solution to cash-strived real estate. However, it failed to extend any support in this regard. Experts believe that the much-anticipated demand for low-coast housing should have been incentivized by providing incentives to the affordable housing sector.
• With regards to rationalizing capital gains regime for REIT, the budget was expected to be more specific and clear, especially whether the sponsors in REITs will avail one-time capital exemption  in exchange of their individual units.

Now that we have analyzed post budget 2015-16 and tried to highlight the points outlined for Indian real estate, question that strikes our reasoning capacity is – has the fiscal budget fulfilled the expectations of real estate industry?  How do you feel about the budget – positive or disappointing? On hindsight, what do you think the budget should have been for Indian real estate?

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