Real Estate Perspective of the Finance Budget by Jones Lang LaSalle

This budget has not given much direct attention to the needs of the real estate sector, except in peripheral ways. While the focus on upliftment of the common man is definitely positive, it would seem that a general waking-up to the sector’s potential and ongoing contributions to the country’s economy is still pending. There has been no mention on granting the sector industry status.

• The fact that no decisive announcement has been made on the extension of the STPI scheme is discouraging, and of definite concern to and IT/ ITES occupiers and developers, given that a large number of SEZs will take beyond 31^st March ’09 to be fully functional.

• The industry expected that service tax on rent would be scrapped.

• There are no specific direct benefits available for the retail industry in this budget. However, reduced overall taxation in various areas will result in higher disposable incomes and will have some positive effects for this sector

• The fact that short term capital gains tax has been raised to 15% will not have a significant bearing on future investments in real estate, which in any case is not a suitable route for investment horizons below 3-5 years.

• The budget seems to have overlooked affordable housing in urban areas

However, there are some positives:

• The fact that Green development has been given a special focus is positive. It indicates that sustainable real estate development has now been recognized as the wave of the future in real estate. The introduction of an institutional mechanism in this field is a step in the right direction.

• The increase of rural infrastructure funding will help alleviate the burden on urban areas by boosting development in rural areas and therefore reducing migration to the urban cities, and the burden on urban infrastructure.

• The raising of allocation for the Bharat Nirman Yojana to Rs 31,280 crore is a step forward. This project, meant to develop infrastructure, was way behind schedule and definitely needed a shot in the arm. We can anticipate increased supply of land across all sectors of real estate as a result of this investment in infrastructure, which will open up large parcels of land for development in the mid-to-long term.

• Commercial space will benefit from the fact that there is a focus on national knowledge centres. The weightage given to knowledge outsourcing spells good news, since it will encourage manpower for the KPO sector, thereby propagating KPO business and hence office real estate demand.

• The special focus on education and healthcare is encouraging. It will have a positive impact on the inherent value of townships developing in many parts of the country. The availability of educational and healthcare facilities always adds great value to such projects, and to any location in general. Moreover, better education results in higher professionalism and more opportunities in every sector, including real estate. However, what we need is an increased focus on vocational skills, and we see no time-bound prospects in terms of implementation in this regard.

• We see value for the real estate sector in the fact that a 5-year tax holiday has been granted to Tier II/III city-based hospitals and 2/3/4 star hotels in UNESCO-specified heritage districts.

• Reverse mortgage will not amount to transfer of property and is therefore not taxable. This will help popularize the very progressive concept of reverse mortgage and encourage purchase of property by/for senior citizens.

• It is laudable that the Finance Minister has advanced the concept of rationalization of Stamp Duty across all states. However, he has not clarified how this rationalization will be structured.

• The Budget is good news for Tier II/III cities, where infrastructural development will ensure that they continue to boom. We must remember that Indian real estate is, after all, not only about the metros but to a significant extent also about anonymous areas that are transforming into new real estate destinations.