By: Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India:
Our reaction to Union Budget 2012-13 is mixed at best. It seems fair to state that the Indian real estate sector does not have much to cheer about.
To begin with, it is difficult to see the raising of the personal income tax exemption limit from Rs 1.8 lakh to Rs. 2 lakh as anything more than tokenism. It is certainly not relevant for the aspiring Indian middle-class home buyer. The expected exemption limit of Rs. 3 lakh would have had some significance. That said, the 1% tax rebate for home loans of upto Rs.15 lakh on homes costing upto Rs. 25 lakh will prove beneficial for developers in this segment
Exempting proceeds from the sale of a residential property from Capital Gains tax if they are invested in equity or equipment of an SME definitely provides home owners with more reinvestment options. Previously, the only route for exemption was purchase of another property or tax saving bonds. At the same time, this move could also result in a lowering of sales volumes on the secondary sale market.
The increase in the service tax rate from 10% to 12% will increase the cost of production for developers, who are already reeling under high input costs. It follows that this increased burden will be passed on to end users.
Allowing External Commercial Borrowing (ECB) for affordable housing is, without doubt, an excellent move. It will ensure better capital availability for developers of low-cost housing. This sector is typified by low margins, and it becomes attractive only if developers are enabled to produce greater volumes. Better capital availability will help in timely project execution, which will result in higher volumes.
The postponement of a firm decision on FDI in multi-brand retail came as a disappointment. We seem to have missed yet another opportunity to boost the Indian economy by ways of significant foreign capital inflows. On the other hand, the increased spend on warehousing will certainly help the retail real estate sector, since more storage capabilities will help retailers to expand into more cities and towns.
Likewise, the measures to increase funding for highways and other infrastructure will help put more territories on the real estate map.
