India Budget 2014: Realty sector has many reasons to cheer

Demand of easing guidelines to allow FDI fulfilled; Budget proposes increase in housing loan rebate from Rs 1.5 lakh to Rs 2 lakh

Published: Jul 10, 2014
India Budget 2014: Realty sector has many reasons to cheer
Image: Reuters

Finance minister Arun Jaitley’s Budget 2014-2015 has given a fresh lease of life to the cash-strapped real estate sector. It has fulfilled the long-pending demand of developers on easing guidelines for allowing foreign direct investment (FDI) in real estate.

The Budget has proposed reducing the minimum built-up area requirement in FDI-funded real estate projects to 20,000 sq mt from 50,000 sq mt. Apart from this, it has also proposed reducing the minimum paid up capital requirement of wholly owned subsidiaries of foreign partners to $5 million from $10 million at present. “This will help service demand from a funding perspective,” says Neeraj Bansal, partner and head of Real Estate and Constructions, KPMG India.

Home buyers too have reasons to cheer. The Budget has proposed an increase in housing loan rebate from Rs 1.5 lakh to Rs 2 lakh, which is expected to give savings of Rs 5,150 to individuals annually and Rs 5,665 for the super rich, according to KPMG.

It has allocated Rs 8,000 crore for rural housing and Rs 4,000 crore for affordable housing through the National Housing Bank, a state-owned bank and regulation authority, to provide cheaper credit to buyers of low-cost homes in urban areas. “However, the government will have to create awareness among buyers about the availability of this credit facility,” says KPMG’s Bansal. The Budget has also included slum redevelopment as part of Corporate Social Responsibility, which will boost participation of private developers in slum redevelopment.

Not everyone is happy with the Budget though. Shyam Sunder Pani, President and Founder, GIREM, a national think-tank that works with local government and supervisory agencies in areas of infrastructure planning, sustainable growth and development, believes the Budget allocation of Rs 7,060 crore for building 100 smart cities is very low. "You need Rs 6,000 crore per city to put in place basic socio-economic infrastructure to serve a population of 1 million. Unless the government tops up this corpus significantly in the mid-term, this will end up being a half-hearted attempt to creating new cities.”

Jaitley’s announcement of reviving Special Economic Zones hasn’t been received well either. “The Budget was silent on the long-term industry demand for removal of MAT (Minimum Alternate Tax), which could have provided a major boost to investment in the manufacturing sector. The Budget should have outlined a roadmap on revving up investor confidence in SEZ,” said GIREM’s Pani.

Realty stocks gave the thumbs up to the Budget, with the BSE Realty index rising by around 7 percent. The index consists of 13 realty stocks, including India’s largest developer by market value, DLF Ltd. DLF’s stock went up by as much as 25 percent.

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