Union Budget : Industry’s reactions

Mr. Lalitkumar Jain, CMD. Kumar Urban Development Ltd and Vice president CREDAI
“The unfulfilled demand of more than 24 million houses in the country needs large scale impetus to achieve desired results. Allowing deduction for investment into affordable housing is a welcome step and will surely boost morale of housing industry and will accelerate investments in affordable housing.Increase limit to 15 lacs for 1% subvention, increasing limit to 25lacs for priority lending for home loans are welcome. However much more could be done to accelerate supply of affordable housing stocks. Also we register our displeasure over MAT in SEZs. Government should not deflect from declared policy of tax exemptions as this gives wrong signal to investors in such projects. We do not see any announcement on 80 IA and 80IB of IT act, which was expected. Also 30 to 36%of value of a flat is tax. We expected government to announce special schemes for affordable housing giving relief. We also expected relief and clarity through amendments for80 Ib(housing) and 80 IA (IT park ).Supporting middle class through increasing deduction on home loan interest to 2.5 lacs was expected but did not come. Generally though we can see governments’ desire to assist Real estate sector, we expected many dynamic ideas in this budget to achieve desired results.Hope this is a beginning of an era of dynamic initiatives to achieve desired result in Housing sector”.

Mr. Uday Ved, Head of Tax, KPMG

“The Finance Minister presented Union Budget today ie February 28, 2011 which intends to keep a balancing act of driving growth agenda and keeping fiscal deficit and inflation under control. His announcement of increase in basic exemption limit from Rs.1.6 lacs to Rs.1.8 lacs will be a welcome relief to “aam admi” providing tax savings of Rs.2000 per person. Also, reduction of sur-charge from 7.5% to 5.00% for companies is a step towards transitioning to new Direct Taxes Code effective April 1, 2012. Relief of withholding taxes on interest payments to 5% on Infrastructure Debt funds by foreign investors will facilitate funding in this important sector. Introduction of Minimum Alternate Tax at 18.50% on SEZ developers and units is a retro gate step and will have adverse impact on the same. Dividends received from foreign subsidiaries will be taxed at a reduced rate of 15% compared to a normal corporate tax rate. This one time relief will help Indian corporates to repatriate dividends from their overseas ventures into India. Similar provision was introduced by USA few years back as a one time relief and this should act as a welcome step. The FM also wants to introduce a constitutional amendment Bill for the introduction of Goods & Services Tax in this Budget session. The GST will also need buy-in from various states before it is implemented. The implementation of GST is expected to further rationalize prices for final consumers. In nutshell, this is a good balancing Budget and will add to growth in the economy”.

Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India

It would seem that the Union Budget 2011 pointedly ignored the larger issues affecting the Indian real estate sector at this sensitive stage of revival and growth.

My observations:

DIRECT IMPLICATIONS

• SEZs have been brought under the purview of MAT, which basically diminishes the benefits that SEZs offer for developers over other commercial real estate asset classes

• Raising the priority home loan limit from Rs. 20-25 lakh is good news for the LIG segment, but will do nothing to ease the pain in the metropolitan cities where real estate prices and therefore demand for affordable housing is highest. Companies such as Unitech and Ansals, which are rolling out budget housing, will be benefited by increase of volumes

• The 1% interest subvention for home loans upto Rs. 15 lakh from the previous limit of Rs. 10 lakh will come as a relief to home loan borrowers from the LIG segment

INDIRECT IMPACTS AND IMPLICATIONS

• Enhancing personal tax exemption limit from Rs. 160,000-180,000 is insignificant and insufficient to make a difference in real estate market terms

• Allowing FDI in mutual funds would have been a blessing if the Government had been more proactive in allowing REMFs

• Stricter measures against black money can potentially help bring about greater transparency and make the real estate sector more attractive for foreign investors. One awaits the detailed outlining and real-time implementation of these measures

• The budget made no mention of FDI in retail, which is great disappointment since the retail sector seriously requires the benefit of foreign investments into multi-brand retailing

• The budget remained silent on the pressing issue of extension of the STPI exemptions as well and Sec 80IA and 80IB, which are pertinent to the construction of residential projects of units sizes below 1200 sq. ft. This is a de-motivating factor which will further curtail the supply of affordable housing

• Raising the corpus of the Rural Infrastructure Development Fund from Rs 16000 crore to Rs. 18000 crore would logically translate into the opening up the real estate potential of hinterland locations. However, similar provisions in the previous budget had no discernible effect. Much depends on how seriously actual implementation is taken

• The budget’s stated intention to create 150 lakh metric tons of food storage capacity can potentially catalyze the formation of more retail warehousing. This would potentially encourage the construction of more modern warehousing facilities, and benefit the retail supply chain by reducing the cost of business operations via increased shelf life of perishable products, reduced wastage and increased margins.





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