Implications on India’s Real Estate
Anuj Puri Chairman & Country Head, JLL India
Meeting Expectations with some Positive Moves
To give him due credit, the Finance Minister has definitely tried to manage expectations by having a balanced budget. While three of the real estate sector’s major expectations i.e. increase in HRA deduction, removal of DDT from REITs and boost to affordable housing by allowing 100% deduction on profits made by entities constructing them have been addressed, there was no financial protection offered to home buyers from project delays.
Most first-time home buyers in major metros will be left out of the additional INR 50,000 tax exemption announced today, as it is applicable only on houses worth up to INR 50 lakh with loans of up to INR 35 lakh. This announcement will mostly benefit first time home buyers in tier-III and tier-II cities. The infrastructure sector was definitely a major beneficiary today.
The biggest announcement with implications for the real estate sector in India was removal of Dividend Distribution Tax (DDT) from Real Estate Investment Trusts (REITs).
REITs could become a reality soon
The Dividend Distribution Tax (DDT) got exempted, clearing a final hurdle on the way of the successful listing of REITs in India. We expect a few listings to happen in the current year itself, either by financial institutions or developers. Currently, around 229 mn sq ft of office space can be seen as REIT-compliant. If we assume that even 50% of these get listed, we are looking at a total REIT listing worth USD 18.5 bn.
Boost to affordable housing developers
100% tax deduction has been announced for developers building houses up to 30 sq m in four metro cities and 60 sq m in other cities, for projects approved between June 2016 and March 2019 and is completed within three years of the approval. Minimum Alternate Tax (MAT) will however apply to these undertakings. Service Tax will be exempted for housing construction of houses less than 60 sq m.
Digitisation of land records
There is a clear emphasis to make land records more transparent and this is an important parameter that contributes towards the overall transparency in real estate sector in India. The government will revive its national land record digitisation scheme with a funding of INR 150 crore. This initiative is expected to increase the overall transparency in real estate and will have a positive impact on the real estate foreign capital inflows.