Union Budget 2012 -13: Indian Real Estate Market - Positives & Negatives

Union Budget : Mumbai Real Estate Market 

- Positives and Negatives

by Mr. Ramesh Nair

Mr. Ramesh Nair, JLL India - West

The Positives

^ By allowing ECBs (External Commercial Borrowings) in the low cost housing segment, the supply of affordable housing projects will increase in the outskirts of Mumbai in areas such as Karjat, Boisar, Nalasopara, Virar and  Dombivili etc. on the heels of increased liquidity for budget home projects.
^ The extension of 1% interest sub - vention scheme on home loans up to Rs. 15 lakh wherein the cost of the house does not exceed Rs. 25 lakh, for another year will also help sustain demand for affordable housing in Mumbai.
^ The increased allocation for highways & other infrastructure projects will help boost development of Mumbai’s outskirts & increase the supply of housing units there. This will result in price stability &  affordability over the long term. The investment linked deduction of capital expenditure in affordable housing, proposed to be raised to 150% from 100%, will also encourage more supply of low cost housing in the Mumbai city.
^ The reduction of the withholding tax on ECB interest from 20% to 5% will help Mumbai’s affordable housing segment by creating much needed liquidity for budget home developers. End users will have more money available for home loans with the setting up of a credit guarantee trust fund to ensure better flow of institutional credit for housing loans.
^ The announcement of central assistance &  Japanese participation in the Delhi - Mumbai Industrial Corridor project is a big plus. Areas on Mumbai’s outskirts that lie along the corridor will see increased land values.

^  By reinforcing the tax pass through status for all types of  VCFs  (Venture Capital Fund), there will be renewed confidence levels of real estate private equity investors to invest in cities such as Mumbai (which has seen most of the PE investments post the Global Financial crisis.)

The Negatives

^ The overall cost of apartments in Mumbai is likely to go up because of the hike in service tax from 10% to 12%. This will render real estate in the city even less affordable – bad news for those who were waiting until the budget before buying houses.
^ The requirement of deduction of tax at source at the rate of 1% on payment of consideration for purchase of an immovable property will impact the cash flows of real estate developers.
^ The lack of a decision on FDI in multi-brand retail will further discourage developers from constructing malls in the city. This will lead to increased rentals in existing malls which are performing well. It will also delay re-tenanting and re-positioning of existing failed malls.
^ The budget made no mention of re-introducing the 80 IB (10) tax benefit scheme for smaller-sized units. This would have helped developers reconfigure &  offer smaller units, which is the need of the hour in Mumbai City.
^ Nor were any new tax exemption schemes for IT / ITES companies mentioned. Such exemptions would have increased demand for the vacant IT parks all over Mumbai.
^ The finance ministry ignored the urgent need for an increase in the limit on tax deduction available on housing loans interest from present Rs 1.5 lakh.
^ There was also no indication of the real estate sector being granted industry status, which would have brought down the borrowing cost for developers – thereby reducing home prices in India’s most expensive city.

About the Author..!
Mr. Ramesh Nair, Managing Director – West, Jones Lang LaSalle India

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