Affordable Housing, and Infrastructure to benefitfrom the Union Budget 2019-20, writes AnujPuri.

“Budget 2019-20 failed to announce sufficient keyinitiatives and measures to bring investors back to the real estate market and,thereby, help pump some badly-needed liquidity into the system.”

AnujPuri, Chairman – ANAROCK Property Consultants.

Overall, the Union Budget 2019-20 is a balanced onewith more of a long-term vision as follow-on of the Interim Budget. It hasobviously been formulated to restore confidence in the India growth story as awhole, and, more importantly, within India Inc.

As far as real estate is concerned, the budget hada few hits and several misses. Infrastructure stayed at the top of thegovernment’s agenda. This is, of course, significant, since infra developmentis one of the main propellers for economic growth and real estate benefits bothdirectly and indirectly.

The new Finance Minister, Ms Nirmala Sitaraman, hadan uphill task of balancing priorities in Modi 2.0's maiden budget. Mostsectors – including real estate – stridently sought concessions to kick-startstagnant consumption and investments. Steering the country out of the strangleholdof economic slowdown and creating employment were also high on the prioritieslist.

The Union Budget was on track in terms ofencouraging savings and investments and empowering rural India. Its thrusttowards the digital economy and start-up evolution will have indirect benefitsin the long run.

As expected, affordable housing under the PMAYscheme (also a critical employment generator) got a boost.

Positives for RealEstate

Affordable housing gets a shot in the arm: The governmentannounced major tax benefits that will help stimulate demand for affordablehousing. Interest deduction up to INR3.5-lakh for affordable housing (priced<INR45-lakh) as against INR2.0-lakh earlier will now be available untilMarch 31, 2020. This can help attract first-time homebuyers.

The FM underscored that the completion of housesthat previously required 314 days/house in 2015-16 has come down to 114 dayssince 2017. If so, the target of Housing for All certainly looks a bit moreachievable. The government has set for itself a gruelling target under theHousing for All initiative.

Infrastructure development push: As expected, amajor boost has been given to infrastructure development via all forms ofphysical connectivity including industrial corridors, dedicated freightcorridors, railways and airways. The government plans to invest over INR100-lakh-crorein the sector over the next five years. This will significantly benefit realestate and, particularly, increase demand for logistics and warehousing. However,actual benefit will depend on its on-ground implementation.

Another positive within the sector includes thedevelopment of nearly 30,000 km roads using green technology by recyclingplastic. This can bring down the cost of road deployment and increase the sustainabilityquotient of a process which, otherwise, has serious environmental implications.

Rental housing may soon shed its ‘poor cousin’ status: The FM called out the old rental lawsarchaic and stated that the government will soon formalize a modern tenancypolicy and share it with all states. Clear-cut incentives to boost rentalhousing via a sound policy will positively help the government to furtherstrengthen its Housing for All initiative. We await further announcements onthis critical policy intervention.

Retail sector benefits: Easingthe registration process for small retailers and further simplifying the localsourcing norms for single-brand retail will benefit the retail sector in thetimes to come, and help the unorganized retail sector become more competitive.

Boost to Student Housing: Thegovernment’s plan to launch a ‘Study in India’ programme to attract foreignstudents in higher education – for which it allocated INR400-crore in FY20 –will inevitably create more demand for student housing. This is one of the bestalternative asset class within the residential sector.

The government’s plan to develop 17 iconic tourismsites as world-class tourist centres will help boost the flow of domestic andforeign tourists to these destinations. It is a major positive for thehospitality sector.

The regulation authority of housing financecompanies has now been moved from NHB to RBI. This will help create moretransparency, eliminate anomalies and improve overall regulation.

On the Flipside

From the real estate perspective, the budget didnot meet many expectations as it failed to address the sector's most pressingconcerns. We may not see consumers and investors return to the market insufficient numbers – barring in affordable housing. The all-important ‘industrystatus’ remained elusive, taxes were not sufficiently moderated, and landreforms were not mentioned at all.

Tax benefits tohomebuyers and investors: The deduction limits on principal andinterest repayments under Section 80C and 24(b) respectively were lastincreased in 2014 after a hiatus of a decade. It was widely anticipated thatthe FM will try and revive consumer sentiments by increasing these taxexemption limits. The fact that these remained untouched is a definitesentiment dampener for many, including real estate.

Investor sentimentwill remain subdued: To revive the ailing real estate sector and easethe liquidity crisis, the government has to revive investor sentiment. However,Budget 2019-20 failed to announce sufficient key initiatives and measures tobring investors back to the real estate market and, thereby, help pump somebadly-needed liquidity into the system.

Pre-budget, there were strong indications that theCentre would create a stress-asset fund to get work started on the stuckprojects and provide relief to cash-starved developers as well as aggrievedhomebuyers. The fact that it did not materialize is a major disappointment.

Increase in customs duty on various raw materials,such as PVC, vinyl floors, etc., may put additional pressure on the pricing ofresidential real estate.

ITC benefit in GSTleft out: Without ITC benefits, builders suffer a major cutin their profit margins. Not only are the consequent losses offset by higherprices to buyers, they also result in a curtailed supply pipeline which doesnot bode well for amenable pricing going forward.