Union Budget’s impact on Real Estate

The all important ‘The Economist’ recently quoted that it was India’s turn to fly high and emerge as one of the world’s leading economy. Its report argued that once fast growing economies of Brazil and China have fumbled and are on the trajectory of slow growth and thus it is India’s turn to arrive on the world map with a big bang in its economic growth. India’s 2015-16 Union Budget is out and is tabled, and is being hailed as a boon for the country. As far the real estate sector is concerned, let’s take a look at how it impacts the sector as a whole.

Service Tax: The service tax has been considerably hiked in the present budget from the prevailing 12.4% to a staggering 14%. While purchasing their dream homes, buyers are supposed and expected to pay service tax. Add to it the existing registration charges, stamp duty and value added tax, therefore the hike in service tax will surely discourage a lot of end users and investors from entering the real estate sector.

Wealth Tax: As per the proposal, Wealth Tax might soon become a thing of the past. Earlier the wealth tax in India was slated at 1% on net wealth over and above 30 Lakhs. The move is expected to raise the level of investments in the real estate domain.

AIFs: Honourary finance minister of the country, Arun Jaitley, has opened the door for Foreign Direct Investments (FDI) in AIFs – Alternate Investment Funds. An AIF is nothing but a pooled in vehicle for investment in hedge funds, private equity and real estate. The government has also proposed to eliminate varied categories like FDI and FPI – Foreign Portfolio Investors, to motivate and boost further foreign investors to invest in the country. This proves to be a win-win situation for the real estate sector.

Black Money: To stop black money transactions once and for all in the real estate sector, the government is on its way to bringing to life the much awaited Benami Transactions Prohibition Bill. FM also proposed to curb the use of Rs 20000 in cash for buying or selling immovable properties. It is a known fact that black money transactions are a part and parcel of the Indian real estate market, Sellers put immense pressure on the buyer to pay using black money and to understate the property value to evade capital gain tax. The bill is expected to put a full stop on the same and thus more people might end up investing in real estate.

Infrastructure: The NDA government led by the vibrant Narendra Modi is planning to increase the investment in infrastructure by upto Rs 70000 crores, plus has plans to rekindle the private public partnership model of investment in the real estate sector. Rural Infrastructure Development Fund which has been proposed in the budget is expected to see an inflow in excess of Rs 25000 crores. These sureshot measures to provide a boost to infrastructure in the nation come at a time when the government is still fighting tooth and nail to fight the ever increasing fiscal deficit. All these will definitely improve the sentiments regarding real estate.

REITs: The soon to be formed REITs will invest in income minting assets and valuables held by SPVs- Special Purpose Vehicles. Nation’s FM has proposed to drop the corporate tax levied on such SPVs to 25% from the existing 30%. Budget lists many reforms which will aid in formation of these SPVs and REITs.

Smart Cities & Rental Income: In order to provide a much needed stimulus to investments in the rental housing segment, the trade pundits had predicted hike in deductions for rental income. The budget however came a cropper regarding this and did not provide any clarity regarding building of smart cities either. According to many, the budget has proven to be a mixed bag for the real estate and what it ends up doing for the sector is something one will have to wait and watch.

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