By Accommodation Times Bureau
Disappointing Budget, says CREDAI President Lalit Kumar Jain
It is a highly disappointing budget, said Mr Lalit Kumar Jain, National President of CREDAI (Confederation of Real Estate Developers’ Associations of India).
The Finance Minister has miserably failed in highlighting the importance the role of Housing in economy, employment generation, apart from the very need of housing. “The announcements on ECB for affordable housing is a minor respite but still meaningless,” Mr Jain, who is also CMD of Mumbai-Pune realty developer Kumar Urban development Limited (KUL), said.
The industry, he said expected a big boost from the budget for affordable housing through special schemes, an interest subvention of 5 to 7% for LIG and EWS housing and promotion of rental housing through tax exemption. But it is said that none of these measures were taken note of.
He lamented at the Finance Minister’s neglect of real estate sector despite its contribution of 6.5% to the GDP.
He pointed out that the interest subsidy on home loans is not enough and cannot help either the EWS (Economically Weaker Sections) of the LIG segment.
In view of absence of any clear cut steps addressing the realty sector, he expressed the fear that the cost of housing will go up. Real Estate sector also faces a grave risk of drying up of liquidity and here again the Finance Minister has not done anything thing to mitigate the crisis.
Mr. Jain felt that the exemption of capital gains tax to invest in SME may result in cash flows out of real estate.
“We definitely expected huge impetus to affordable housing sector which is a dire need from the government’s own sated objective of providing shelter for all and as a measure to boost the economy,” he added.
Mixed Bag for the real estate sector
Mr. Brotin Banerjee, MD & CEO, Tata Housing
“The Union Budget 2012-13 throws up a mixed bag for the real estate sector. The Government’s initiative to make affordable housing available to a larger section of the society has only been met partially. Initiatives such as External commercial borrowing for the affordable and low-cost housing segment will help the sector to tap long-term fundsand help ease the liquidity in the sector. Extension of the 1% interest subvention scheme for affordable housing will help the buyers to avail a loan limit of Rs.25 lakh. Also the measures to increase funding for highways and other infrastructure will help put more territories on the real estate map.
However, the demand of increase in the limit on tax deduction available on home loans interest from current Rs 1.5 lakh remains unanswered. The Union budget has no real measure for the real estate sector as most of the industry expectations have not been met. The most important demand across all real estate companies that of an industry status being assigned to the sector has been long pending as well.”
Mr. Neeraj Gulati, MD, Assotech Realty
By providing external commercial borrowings (ECB) for low cost affordable housing projects, it has helped to lower interest cost for developers. But, we were expecting the budget to be more fruitful for the Real Estate sector. It has ignored various important issues, leading to unfulfilled expectations.
•Last year, a 1% interest rate subsidy was provided for loans towards affordable housing. Realty sector wanted the scope of this subsidy to be amplified and broadened to include a wider price band of budget housing to benefit home buyers, especially in lower income groups. There has been no development on this.
•There is no legislation on Real Estate Investment Fund (REIT)
•No implementation of revised DTC to provide the required clarity on the issues that may emerge, and how businesses would be promoted in SEZs.
•No development of Real Estate regulator to ensure transparency and fair play to create a sense of trust amongst the consumers
•No relaxed norms for repatriation of FDI in real estate to make the market more investment friendly
Srei Infrastructure Finance Limited:
The Finance Minister has presented a budget aimed at sprucing up the country’s infrastructure and readying it for higher growth. Besides enhancing sectoral allocations, the doubling of the amount of tax free bonds to be raised for infrastructure in FY13 will go a long way in capacity augmentation in roads, power, railways, housing, ports, etc. Expanding the scope of Viability Gap Funding and including various segments of agricultural infrastructure, telecom and also including oil & gas related infrastructure is also welcomed. The Minister has rightly identified the criticality of external commercial borrowings (ECB) in infrastructure financing and to that end has rightly allowed ECB financing to play a larger role in sectors like roads, power, railways, housing, mining, etc. However, the Minister has not mentioned anything on raising the annual cap of USD 30 billion that now applies for ECB in India. We hope that cap will be raised in due course. In addition, customs duty reduction on a number of items and equipment pertaining to sectors like road, power, mining, shipping, aviation, cold chain, agriculture, etc. will go a long way in benefiting India’s infrastructure. Reducing the withholding tax rate on ECB from 20% to 5% for 3 years for select sectors is another big positive for infrastructure sector. The sunset clause for power sector stands extended for another year and the sector has also been allowed enhanced depreciation on select items. In rural infrastructure, it is interesting to note that apart from raising sectoral allocations, incentives have been provided towards encouraging creating & using more warehouses, which will help towards curbing our annual wastage of foodgrains to a large extent.
Mr Chaitnya Parekh, Chairman & Managing Director (Soham World)
The Budget 2012-13 is combined with positive and negatives at the best. It seems fair to state that the Indian real estate sector does not have much to cheer about. There is hope for major improvement but nothing much has been done. No consideration has been given to real estate in this year’s Budget,” he except that the other hand, he pointed out that the external commercial borrowing is allowed.
Raise of 10% to 12% service tax will increase the cost of production for developers, who are already reeling under high input costs, Later this increased burden will be passed on to end users. It is has increased the service tax and also the excise duty which would directly make an impact on various inputs of real estate which ultimately is likely to make an impact on the price of the properties
Mr.Shrinivas Rao, CEO-Asia Pacific, Vestian Global:
Residential Sector: With high borrowing rates and declining sales, the extension of 1% interest subvention scheme for affordable housing is the positive measure of the Union Budget 2012-13 for the realty sector.
Multi Brand Retail: The government has reiterated its commitment to favour multi-brand retail by allowing FDI upto 51 per cent, subject to consensus from the state governments, which is bound to be a time consuming and a challenging process.
To sum it up, union budget 2012 – 13 is a disappointment for real estate sector with issues like uncertainty in SEZ regulations, delay in implementation of Direct Tax Code (DTC) and failing to provide “Industry” status.
Mr. Ravi Saund, CHD Developers COO
Infrastructure has taken a centre stage yet again in the reforms in the Union Budget 2012-2013. The steps to increase funding for roads, highways and other infrastructure will surely add more terrain on the Indian realty map taking tier 2 and tier 3 cities on new growth trajectory. The 1% tax rebate for home loans of upto Rs.15 lakh on homes costing upto Rs. 25 lakh will prove beneficial for developers in the category of residential sector. Exempting proceeds from the sale of a residential property from Capital Gains tax if they are invested in equity or equipment of an SME definitely provides home owners with more reinvestment options. Companies engaged in infrastructure and affordable housing are in for some heightened activities in the near future as the government opens up funding options for such companies. Allowing External Commercial Borrowing (ECB) for affordable housing is no doubt an admirable move. This will ensure easy access to funds and better capital availability for developers of affordable housing. ECB will attract more developers to enter affordable housing.
Mr. Manoj John – Vice President: Corporate Planning & Strategy – RNA Corp.
The positive from the budget is clearly for the ‘Affordable Housing’ segment. The extension of 1% interest rate subvention loans up to Rs. 15 lacs for housing projects up to Rs.25 lacs by 1 more year and ECBs for affordable housing which will enable developers to lower interest costs by borrowing overseas. Also the much needed credit guarantee for home loan application from economically weaker section is supported by creation of Credit Guarantee Trust Fund.
There are some obvious let downs also, the industry was keenly awaiting the home loan interest exemption to be increased to 3.00 lacs per annum, and enhancement of funding options for urban housing. Instead the increase in service tax by 2% along with the prevailing high interest rates will further negatively impact demand. The impact of higher excise duty will increase the construction material cost, which will lead to more pricing pressures.
The real estate industry is dissatisfied with the Union Budget for 2012-13 and calls it a lackluster and directionless document.
The industry that contributes about 6.5% to GDP was expecting a lot from the Finance Minister in terms of support to both the home buyer and developer community. “But sorry to say that the Finance Minister has disappointed all of us,” said Mr Paras Gundecha, President of MCHI-CREDAI, the representative body of the developer community.
Mr Gundecha said the measures like allowing ECB for affordable housing will only have a cosmetic impact since the definition of affordability has changed. The government’s definition of affordable housing does not cover much of the society in land-starved cities like Mumbai.
He lamented at the fact that the Finance Minister did not address the root cause of the high rise on cost of construction – the ever increasing cost of inputs like cement, steel, labour and multiple taxation. “We were honestly expecting some measures aimed at bringing about reforms in the real estate sector and even granting status of industry to it, but there is nothing but disappointment in this budget,” Mr Gundecha said.
“We fail to understand as to how long the government will continue to ignore the capital and labour intensive sector,” he said.
Much of the economic policy in the States depends on directions from the Centre and the Union Budget and this year’s budget has failed in this aspect as well, he added.
Mr. David Walker, Executive Director, SARE Homes
Union Budget has made modest efforts to address the real estate sector with measures like offering 1% tax rebate for home loans of up to Rs.15 lakh on homes costing up to Rs. 25 lakh and allowing External Commercial Borrowing (ECB) for affordable housing. Controlling the fiscal deficit will pave the way to lowering of interest rates which will revive real estate sales. Several positives steps taken to revive the ailing infrastructure would of course come as a boost to the economy.