Budget 2014 and Real Estate The Union Budget 2014 has brought some relief to the common people and a lot of joy to the Developers and Institutions. Let’s look at the key announcements and their impact 1. Exemption limit on Interest paid on Home Loan taken for self occupied house increased from 1.5lacs to 2lacs. Impact On Buyers: Less tax outflow. You save between Rs.5000 to Rs.15000 every year depending on your tax slab. On Developers: Marginal encouragement for end users to buy homes. 2. Announcement of opening REITs. REITs are like Mutual Funds investing in only Real Estate assets. It is the most popular way of owning real estate in most of the developed world. It promotes channeling of retail as well as institutional money into large “Developmental” as well as regular return generating “Rental” investments into residential, commercial, retail as well as infrastructural projects. The investment is perpetual in nature and investors have a choice of holding them for very long period or can easily liquidate them in short periods also. The REITs have the flexibility to be diversified into various categories of real estate or can concentrate into theme specific. Investors can exit like they exit from Mutual funds. Impact On Buyers: Huge benefits over standard real estate investment. Ease of operations, Advantage of scale & diversification, Easy liquidity, Opportunity to own a share in large projects which otherwise require huge capital. On Developers: Access to capital, Can develop projects of large scale and sell to a single buyer, more structuring options, Opportunity to launch their own REITs. 3. FDI regulations eased. FDI real estate developmental projects can be launched with minimum investment of just USD 5 million from earlier USD 10 million. There is a positive string attached to this FDI announcement regarding minimum of 30% affordable housing development in such projects. Impact On Buyers: More projects at affordable prices. On Developers: Opportunity to attract foreign investors for even smaller and affordable projects. FDI will also bring international technological and architectural know how. Further there were some encouraging announcements on promoting new planned cities and developing peripheries of metro cities. There was also a statement on including “Slum Development” in the list of activities under corporate social responsibilities. Disappointments a. No announcement and clarification / abolition on TDS on resale proceeds for resident as well as NRI sellers. b. Reduction in Taxes on buying under construction projects. c. No announcement of introducing a Real Estate Regulator. d. No talk of a countrywide project for digitalization of land records. What should be your real estate investment strategy now! Overall we believe that the Budget is beneficial for the buyers as the prices in Metro cities may soften due to overall emphasis on expanding peripheries of Metros by developing infrastructure, developing new planned cities. We also expect ease in launching new projects due to the Government’s soft environmental and approval polices. The Government is also encouraging fresh capital inflows through REITs and eased FDI norms. Increased future supply clubbed with better connectivity would result in eased pressure on city centers hence, the already peaked prices of prime locations may not increase at the same pace as the peripheries. There would be opportunities in buying property in smaller towns as well. It’s a good idea to invest in outskirts of Metro cities as well as in the various towns where new IITs, IIM, AIIMS, Logistic Parks and Industrial corridors are planned. This budget has one very strong signal to catch that Modi Government is looking at development of all corners of India. This is both positive as well as negative for real estate investors. People who are already holding real estate portfolio should seriously look to churn and diversify into smaller towns, affordable housing, retail as well as commercial properties. Those who are in the process of building a portfolio should give a serious thought to smaller cities. Thank You
Posted on: Thu, 10 Jul 2014 14:49:58 +0000
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