By Anuj
Puri, Chairman & Country Head, JLL India
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Retail
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Hospitality
The
Union Budget 2014-15 was presented in the parliament under economic
circumstances that required tax revenues to keep pace with targets.
Considering
the state of government finances and the current situation –
below-normal monsoons, Middle East tension leading oil price volatility,
the weakness of the India rupee etc., there was not much room for
populism.
However,
considering the high inflation and curtailed savings that they have had
to contend with for some years now, taxpayers still expected a fair
shake from the new government, such as enhanced deductions, reduction
in tax rates, interest subvention on home loans and tax incentives to
affordable housing.
The Finance Minister took a cautious, yet courageous path with his budget announcement:
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Housing
In
terms of relief to the housing sector, the budget has allocated Rs.
4000 crore for low-cost housing schemes. Apart from this, he has also
indicated
that there will soon be a relaxation of FDI norms for the affordable
housing sector. Though the government has announced such incentives for
low-cost housing in the past, the real task lies in the fast execution
of the fast execution of these initiatives.
It is very positive that the government has taken due note of the
demand-supply mismatch in the LIG and EWS housing segments, and it
remains to be seen how fast these initiatives hit the ground in real
time.
Significantly,
the budget has increased the income tax deduction limits under 80C, of
which the repayment of principal on housing loans is a component.
This limit has been raised from Rs. 1 lakh to Rs. 1.5 lakh.
Additionally, the budget has also increased the deduction limit on
interest payment for housing loans from Rs. 1.5 lakh to Rs. 2 lakh.
These two factors alone will lead to a vastly improved sentiment
on the housing markets.
The
budget gave further indirect benefits for the residential sector by
increasing the individual income tax exemption limit from Rs. 2 lakh to
Rs.
2.5 lakh. This will increase disposable income of individuals and would
have further implications on their ability to service home loans.
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Construction Sector
Construction
costs have been rising at the rate of 17% over the last three to four
years, and this budget has not provided enough measures to bring
down these costs. Contrary to expectations, material costs involved in
real estate construction will remain high over the near-to-medium term,
which is bound to put pressure on developers’ margins.
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Infrastructure
The
infrastructure and manufacturing sectors have been given paramount
importance in this budget, since these are job creating verticals. Banks
will
now be encouraged to extend long-term loans for infrastructure projects
without any regulatory pre-emptions such as CRR, SLR and priority
sector lending norms. This additional enforcement of banks to support
the creation of infrastructure will result in faster
infrastructure creation and the consequent benefits to the real estate
sector.
The
budget has allocated a total of Rs. 37880 crore towards the NHAI for
the construction of highways, and additional Rs. 3000 crore to boost
road
connectivity in the North-East regions. For the current year, it has
targeted the completion of 8500 kilometres of national highways, which
are a known real estate catalyst and will have long-reaching
implications on the markets of the cities they connect.
Ahmedabad
and Lucknow have been singled out as special beneficiaries of this
budget with the allocation of Rs. 100 crore towards the deployment of
Metro rail systems in these cities. The increased connectivity will
raise the scope of real estate development there and also have an impact
of property valuations over the mid to long term
The
development of 16 new ports has been proposed at an outlay of Rs.
11,000 crore. Additionally, an allocation of Rs. 11,600 crore has been
made
for the development of outer harbour port projects. The combined effect
of these provisions will be that there will be an increase in demand
for commercial office space from the manufacturing sector in India’s
major port cities.
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Smart Cities
As
promised in the new government’s manifesto, it has proposed the
creation of 100 smart cities across India. The budget has allocated Rs.
7060 crore
towards this end, thereby giving a financial sign-off for this concept.
This will have very positive implications for real estate across all
segments, namely residential commercial, retail and hospitality. Smart
cities, by definition, imply considerable demand
for technology-enabled services, and this is a big positive for IT/ITeS
companies in India. Significantly, as much as one-third of the
country’s demand for office space emanates from this sector.
The
country’s warehousing sector has received a boost with an allocation of
Rs. 5000 crores. In this, we see positive implications for the retail
real estate sector on account
of a strengthened supply chain, which has been a serious requirement of
this sector for a very long time. Apart from this, the budget has not
provided any further benefits to the retail sector, which is a
disappointment.
The
budget also brought cheer to the hospitality sector in two major ways.
One, it has stipulated that electronic visa services will be introduced
in nine international airports
in India over the next six months. This will increase the magnitude of
tourist arrivals in the country. Secondly, it has indicated that major
provisions will be made for the creation of world-class convention
centres to be developed through the PPP model.
Once these centres are created, they will bring about an increase in
corporate tourism into the country. Ailing hotel chains are looking at a
significant revival in their fortunes, and we expect that the
absorption of hotel-related real estate will rise in
the bargain.
All In All...
The
real estate sector’s expectations have definitely not been met
completely in this budget. However, given the economic situation
prevailing in the country, this is not really
surprising as the government needs to balance myriad issues while
addressing growth. We are satisfied at the real estate sector is once
again headed in the right direction.