GoI’s Infra Push to Benefit Real Estate Development in the Long Run

The Government of India, over the past few years, has set a precedent where some policy changes are made through the Budget; while an equal – if not more – are done outside the Budget. It appears to hold true for this one too. For real estate, there was extension by a year of sops given to affordable housing; as also focus on creation of data centers. The liquidity crisis as also last mile funding for stalled and delayed projects were major problems which needed urgent measures, somehow, did not figure among the  proposals. Neither the home seeker nor the real estate developer had much to write home about.

The Budget Speech by Hon’ble Finance Minister Nirmala Sitharaman mentioned three key themes for the Union Budget 2020-21: aspirational India; better economic development and caring society. In line with this, she has announced a mix of tax reliefs along with investments in specific sectors. A primary reading of the proposals shows that much of what was expected, especially by stakeholders in real estate, has been left out – hopefully, for initiatives that will happen outside the Budget.

Overall, I would describe this as a good budget; real estate’s belied hopes notwithstanding. It is one that follows the right directions, with huge quantum of thought on part of the Hon’ble finance Minister. The effort appears to be directed towards kick-starting economic growth; the Fin Min made positive statements during her speech; and intentions seem to be in line with facing challenges of the economic scenario. Where I think the Hon’ble Minister could have ‘pushed the envelope’ is in going a bit beyond; opting for a bit more of fiscal deficit and pumping those funds to avenues of economic growth – given the economic challenges, it might have been a good option.

Having said that, let me add that the direct positives which many industries and sectors, like manufacturing for instance, were expecting – did not figure in the Budget Speech. Ideally, one would wait for the fine print to be read, if not something outside the Budget. After all, the Fin Min was aware of the high level of expectations from different industries in terms of measures that were needed to would boost consumption; in turn, enhance production and enable the economy to be back on what the average Indian would term as ‘normalcy’.

Expectations from industry as also citizens, perhaps, were at a very high level. This is probably the reason why a Budget Speech, in which the Finance Minister covered most major segments, still left most of us thinking it could have delivered a wee bit more. My analysis is that it provides many a long and medium term solution, but the need of the hour was for ‘quick fix’ remedies, which would enable stuck sectors and industries regain traction. For real estate, there are a plethora of issues where remedial action was expected on an urgent basis. Going by the Hon’ble Minister’s Speech, practically all of those seem to have been missed out on.

For real estate, ‘affordable’ remains the favourite in housing, with the previous tax exemptions for both homebuyers and developers being continued for one more year. Commercial real estate segments received a boost, with the Fin Min focusing on warehousing, data centers, schools, hospitals and hospitality. However, we saw no proposal that offered any solution for resolving the current housing challenges: the stalled and delayed projects, a large number of which are stuck for last mile funding. Similarly, the liquidity issue which is a major challenge for the economy in general and real estate in particular, is again a challenge for which one does not see any major relief in the Budget proposals.

The attempt to create disposable surplus in hands of the citizen by restructuring of income taxation rates comes with a rider: the relief for income taxpayers will be optional; the Fin Min did not specifically mention anything about tax rebates in the new structure. So, we wait for the fine print on this.

Among the positives, we saw infrastructure development leading the list when it comes to the government’s efforts at fueling economic growth. The focus on infrastructure development will have a positive, multiplier effect on the economy as also on real estate. Similarly, the shifting of Dividend Distribution Tax (DDT) to individuals instead of companies will result in incorporates diversifying or expanding their business. This will also make India attractive for investors, possibly boosting investments. This should translate into good news for commercial real estate.