Impact of Budget 2016-17 on residential real estate

In many ways, it is more psychological than anything else – home buying post the announcement of budgetary proposals is among the scenarios that one sees every year, and 2016-17 isn’t going to be an exception.

This year, there were high expectations on part of home seekers as also developers, and the budget seem to have in focus the ‘Aam Aadmi’ looking out for ‘affordable housing’. Considering the economic scenario facing the country, the Hon’ble Finance Minister Shri Arun Jaitley has opted for a few positives for real estate: some for the real estate developer and some for the buyer. Hopefully, these will be effective in boosting sentiment across 2016-17.

I would describe the Union Budget 2016 as comprehensive, well-rounded, with some positive initiatives for the residential real estate sector. The affordable housing booster – 100 per cent deduction for profits to an undertaking from a housing project for flats up to 30 square metres in four metro cities and 60 square metres in other cities – will definitely create a positive sentiment, and we should see more developers entering the low-cost housing space. This is the supply side, on the demand side, the announcement about additional deduction of Rs. 50,000 per annum for loans up to Rs. 35 lakh for houses under Rs. 50 lakh will encourage buying of affordable housing. Excise duty exemption on Ready Mix Concrete (RMC) will result in lowering the cost of housing construction and, in turn, encourage builders to pass on the benefits to home buyers.

For a home seeker, policies laid down by the government are ‘sign posts’ in the journey towards making a ‘dream home’ into reality. Among the various policies that are laid down, none has as much of an impact as the Budget. This is because it specifies new aspects of taxation, changes in existing levies, as also issues relating to interest rates.

But it goes beyond just the impact of a Policy Statement: the beginning of every calendar year sees the festival of ‘Makar Sankrant’, and tradition-minded home seekers do not buy homes in the period around this festival. Effectively, this ‘slow-down of sorts’ means that home buyers await auspicious days – festivals like Gudi Padwa to make the actual purchase, and usually, the Hon’ble Finance Minister makes his budgetary proposals speech before such positive festive days. Issues like taxation and levies are made clear by the Hon’ble F.M., and this clears the way for home seekers to move from being ‘fence sitters’ – those who have zeroed in on their home of choice, tied up the home finance but are still not making the ‘buy’ decision – to becoming actual buyers once the new fiscal year starts.

Let me look at the picture from the Hon’ble Finance Minister’s perspective: Budgets are always a toss-up between reining in inflation and pushing growth opportunities, and the Hon’ble Finance Minister this time around has opted for caution; he has gone in for controlling the fiscal deficit. As he has done in the past, Shri Arun Jaitley refrained from making any ‘Big Bang’ announcements in his Budget Speech, opting instead to lay the foundation for balanced economic growth. Rural India, Agriculture and Infrastructure are the front runners in the Budget; this should provide the much needed fillip to economy, in turn creating a positive for the real estate sector. The massive push to infrastructure spending, incentives to the MSME sector as also initiatives like ‘Make-in-India’ should get a boost, and this will benefit real estate in the long run.

In this sense, the scenario post the Budget Speech would appear to be conducive to home buying, and this would be ‘inclusive’ in nature – focusing on the affordable, LIG and EWC housing segments. The improved economic scenario will undoubtedly boost sentiment in the MIG and HIG segments. Positive aspects of the Budget should translate into more money in the home seeker’s pocket, and this will undoubtedly provide a major boost to home buying sentiment across the board.

The scenario going into fiscal 2016-17 appears to be one of ‘continuity’ – the trend of ‘fence-sitters’ turning into ‘actual home buyers’ once the new fiscal year starts seems all set to continue this year as well. Given the positive trend witnessed post festive season 2015, as also the trend witnessed in the initial months of 2016, I think home seekers who have seen what the budget had to offer, will now go ahead and buy their home in the new fiscal year. Festivals like Gudi Padwa are expected to drive this positive sentiment in FY 2016-17.

Viewed from a developer’s perspective, to my mind the biggest paradigm shift that comes from the Budget Speech relates to REITs. In his Budget Speech, the Hon’ble Finance Minister has proposed that any distribution out of SPV income to REITs and INVITs with specified shareholding will not be subject to Dividend Distribution Tax (DDT). I expect this to spur investments in REITs, as effectively, this clears the final hurdle for successful listing of REITs in India. This, for me, is the biggest plus from the Budget Speech; a paradigm shift, and not only do I expect some REITs to get listed this year, I also estimate REITs listing of a few billion dollars to happen. So, funding will happen, and projects will take off.

From demand boosters to relief for home seekers, Budget 2016-17 effectively presents a mixed bag for Indian real estate. The Budget, over-all, appears to be in ‘positive’ territory and hopefully, will result in home buyers buying homes.

To conclude, I think the Budget Speech had many positives which will become apparent as the year goes on, and the positive impact of those will also add to the positive sentiment.

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