RMZ Corp is one of the largest real estate developers in India with over 28 million square feet of prime real estate developmental projects since its inception in 2002. RMZ’s expertise in the development of Commercial Office Spaces has propelled the company to expand its horizon and embark on developing state-of-the-art Residential and Hospitality Spaces.
PROPELLING REAL ESTATE TOWARDS A NEW DAWN
January 30, 2018.
BY: Arshdeep Sethi, Managing Director – Executive Management, RMZ Corp.
Presentation of the annual budget by the country’s Finance Minister is one of the most important events in the year’s first quarter as it affects each and every one of us in multiple ways. Various bodies and interest groups are presenting or publicizing their ‘wish-lists’ to the government so that they can be met by the budget for the following year.
Since coming to power the Narendra Modi-led NDA government has focused on infrastructure creation and easing the process of doing business in the country. It has also brought in much needed reforms such as the GST, RERA, etc. The real estate sector is a major driver for economic growth, especially the creation of jobs, the lack of creation of which has oft been pointed out by the opposition. Presented here are some of the major ‘wishes’ of the real estate sector, which we hope are addressed by the upcoming budget.
Single window clearance system:
One of the biggest expectations is that of a single-window clearance system for getting approvals etc. with a pre-set time limit prescribed for the authorities to either approve or reject a new project proposal. In the post-RERA era, it is absolutely necessary in order to eliminate execution-related delays.
Industry status for real estate:
This is an expectation that the industry has had for a very long time and hopes go up during each budget session for the past several years. Industry status will allow RE players access to lower cost funding from banks, thereby lowering development costs, which will ultimately help increase demand, especially of homes.
One of the primary requirements for the country to be able to grow is the existence of adequate underlying infrastructure that can facilitate and accelerate growth. The government has been focusing on it and it is likely that the focus will stay on the sector. Big ticket infrastructure is needed, both urban and rural, such as roads, railways, metro rail networks, ports, power, etc. With the advent of GST and the resultant ease in interstate commerce, there are massive opportunities in logistics and warehousing sector too. On the whole, opportunities are immense. Previous year the government had allocated Rs 3.96 lakh crore to the infrastructure sector. It is expected that in line with the thrust on infrastructure, this year not only the capital expenditure on infrastructure might increase but doors may be opened for greater foreign investment in the sector.
REITs represent a huge potential in the context of Indian Real Estate. India has a large stock of properties, commercial offices as well as retail, which are ripe for REITs. It is estimated that India has over 280M sq. ft. of REITable office space. Laws and procedures which ease investment into and exit from REITs are needed, particularly tax laws. Their potential to provide liquidity to developers while at the same time creating a totally new asset class for investors to invest in makes it an option that the upcoming budget would do well to promote.
Higher Incentives for home buyers:
Under the Pradhan Mantri Awas Yojana (PMAY) – the project that promises housing for all by 2022, the government aims to build 1.2 crore homes. The project was launched in June 2015. As per the targets, 12 lakh houses were to be constructed by 2017-18. However, till last year only 1.49 lakh houses were constructed. Hence, clearly more needs to be done if housing for all by 2022 is to be achieved. First-time home buyers should be allowed higher tax incentives which will spur demand in the residential sector. Incentives can be targeted towards buyers of smaller/affordable homes which will help achieve "housing for all" targets.
Tax rationalization for GST:
Prior to the GST regime, the taxation on construction was 4.5% Service Tax and 1% VAT, thus, totalling to 5.5% However, under GST, this has increased such that the effective rate is about 12%. In an effort to ensure that the change in the tax regime does not result in higher taxation for the real estate sector, especially homes, NAREDCO has requested the government in a pre-budget memorandum to bring GST on under construction housing properties to 12% slab, with 50% abatement for land and Input Tax Credit, from existing 18% slab with 1/3rd abetment for land and Input Tax Credit. This move will cause the effective rate to be about 6%, which is about the same as earlier.
Green low-carbon- footprint buildings:
The government is committed to bringing green, sustainable technologies to the masses for which it is promoting renewable energy, recycling, etc. Buildings are responsible for more than 40% of global energy used, and as much as one-third of global GHG emissions, both in developed and developing countries. In view of these facts, it would do well for the government to incentivise developers and occupiers to adopt green technologies. With several rating systems for green buildings already in place, the upcoming budget should provide tax breaks for green and low carbon footprint buildings.
Smart cities and second tier cities:
Second tier cities – the name itself is fundamentally inaccurate. Rather than being second-rung cities, these cities have the potential to become regional powerhouses with excellent infrastructure and growth opportunities. An impetus to these cities is already being provided under the ‘Smart Cities’ initiative. This will not only help create all round development across the country, but will also help remove the pressure of migrant population on primary / metro cities.
Tourism and Hospitality:
India is an ancient land. It has a huge untapped potential for tourism. From a rich history to the highest mountain ranges to deserts and tropical rainforests – India has it all. It is hoped that the budget will help setting up of hospitality ventures that will help showcase India’s richness to its one people and to the world.
Conclusion: For India the time is Now
The budget has always been an exciting time for the country. However, the present budget is being presented at a very critical point in time. The time is now for the country to leverage on its massive potential to become not only a global player but also improve the socio-economic situation within the country.
The government over the past few years has taken several tough decisions such as demonetization, implementing GST and RERA, etc. which will be beneficial in the mid to long run. In January 2018, the government allowed 100% FDI in the construction development sector under the automatic route. The construction and infrastructure sector has received almost 10% of the total FDI equity inflows from April 2000 to Sep. 2017 amounting to over USD 35 billion. With the increased transparency and credibility as a result of the regulatory changes, this figure is set to skyrocket in the future.
The time is now for the country to catapult itself on a high-growth trajectory. And the real estate is the powerhouse that can not only propel the country on this path while creating jobs and bringing prosperity to a large number of people in the process.