Budget 2014-2015
Real estate has historically been on the periphery of Budget reforms for some time now. In that sense, the reforms announced by Finance Minister Mr. Arun Jaitley in the Union Budget 2014-15 have come as a breath of fresh air — something that the sector has welcomed with open arms.
So what does the latest Budget do for real estate? And more importantly, how will these Real Estate sector reforms directly or indirectly help you in the growth of your wealth : –
Lesser tax outgo
As per the latest budget, the minimum slab for taxable income has increased from Rs. 2 Lakhs to Rs. 2.5 Lakhs for individuals below 60 years of age and from Rs. 2.5 Lakhs to Rs. 3 Lakhs for senior citizens. This essentially means that you will have an additional Rs. 5,000/- to Rs 15,000 available to you for paying the EMIs / installments towards your house.
Paying a home loan? Save more on the interest component now.
Up till now, the Government allowed exemption of up to Rs. 1.5 Lakhs under section 24B of the Income Tax Act, 1961 on the interest paid on home loans. However, looking at the ever-rising inflation and high interest rates on home loans, the exemption has been increased to Rs. 2 Lakhs. This is indeed a welcome relief for existing homeowners and potential property buyers as it allows higher tax savings under this section.
Housing for all
The Government recognizes the need of housing for the burgeoning low and middle class population of the country. With Rs. 8000 crores allocated towards rural housing under NHB (National Housing Bank), the Government’s intent to provide housing for all has been backed appropriately with financial support. At the same time, the Rs. 4000 crores allocated towards urban and EWS (Economically weaker sections) development is another step to ensure that this objective is achieved by 2022.
Building slums for the less privileged is also a social responsibility now
Large corporate entities are now mandated to invest a significant sum under CSR (Corporate Social Responsibility). With slum development qualifying as an investment under that sphere now, these companies can look at investing in slum development from their CSR spending. If this kicks off in a big way in metro cities it might really help in improving the living conditons for your maids, drivers and other helps besides speeding up the rural development process across the whole country.
More FDI in the Real Estate sector
Relaxation in FDI norms in real estate is yet another reform which is going to play a critical role in augmenting the level of foreign investment in the real estate sector in the short as well as the long term. The minimum area for investment which stood at 50,000 square meters has been reduced to 20,000 square meters. And to supplement it further, the minimum investment limit has been brought down from USD 10 million to USD 5 million. Removing these constraints will surely give a big boost to smaller real estate developments as they can now get capital from global investors who will now find investing in India’s real estate a more viable proposition. And you can look forward to more good quality projects being delivered in time.
REITs to get tax pass through status
While investment in real estate provides high returns, the scale of investment is also high which makes it inaccessible for many investors. With REITs (Real Estate Investment Trusts), investors will soon be able to make investments in the real estate sector with as little as Rs 2 lakhs, and get access to higher returns the sector promises.
The reform put forward by the Finance Minister proposes REITs to get tax pass through status. What that simply means is that REITs will not be subject to double taxation i.e. the return from investment will be taxed neither in the hands of the investor nor the trust. Since REITs are close-ended mutual funds, one would be able to easily trade these securities on a stock exchange and their taxation will be similar to that of equities (stocks).
Taxation on REITs still needs clarity but with this reform, REITs will steer clear of double taxation, which in turn can help real estate companies to raise capital more easily through REITs as they are bound to find more takers.
Smart cities – Laying the foundation for a well-developed country
The Finance Minister has set aside Rs. 7060 crores towards development of 100 smart cities throughout the country. Prime Minister Mr. Narendra Modi has mentioned his desire of building smart cities many a times in his speeches and this allocation just backs up his vision. While the reality is that it will require well-regulated frameworks and a much higher scale of investment to be fruitful, this allocation is a significant step in the right direction because the eventuality of smart hubs is undeniable. With a large mass of population migrating to urban Tier-I cities in search of employment, the real estate sector and city planners will have to conceptualize and execute sustainable models of smart cities.
And herein lies the opportunity. Smart cities open up a nascent avenue for real estate to grow and provide better quality of living to the citizens of the country. Smart cities also means higher level of urbanization which has the potential to contribute to India’s GDP in a big manner.
In more than one way, this Budget and the reforms that it brings along with it can serve as the foundation of the growth of the real estate sector in the coming years. The only thing that remains to be done is to grant industry status to the real estate sector so that the credibility of the sector increases and raising capital becomes easier for real estate companies.