ONCE IN A CENTURY BUDGET

REAL ESTATE PINNING ITS HOPE ON THE BUDGET FOR SOME DIRECT RELIEFS AND INCENTIVES WAS LEFT DISAPPOINTED ON THAT FRONT. THOUGH IT STANDS TO GAIN INDIRECTLY FROM MANY OTHER PROPOSALS SET OUT IN FOR OTHER SECTORS AND INDUSTRIES. THE BUDGET SEEMS TO BE A MIXED BAG OF HITS AND MISSES. By: Sapna Srivastava  The economy was slowing down even before the pandemic struck. In 2021, the economy is in recovery mode, there is also a hope of recovery through elevated public spending in the next 2-3 years. As the government had to keep the expenditures at elevated levels to revive the economy, it had to spend 13.4% more than the budgeted amount. The fiscal deficit for 2021-22 is budgeted at 6.8%. With the expectation of increased revenue collections by 15%, and the disinvestment target pegged at Rs. 1.75 lakh crore, the expenditure estimate is rightly kept at around 1% lower than in the current year. While the revenue expenditure is estimated to decline by 2.7%, capital expenditure growth is pegged higher at 26.2%. WHAT THE REAL ESTATE GOT The real-estate industry under stress even before the pandemic was pinning its hope on the Budget for revival. The sector expected temporary waiver or reduction in GST rate for retail home buyers and an allowance for availing input credit during construction period for commercial properties to reduce construction cost for the sector. While, direct incentives allude the sector, provisions like establishing "Bad bank" would expedite resolution of stressed real estate assets and monetization of PSU land bank will bring substantial land supply in major cities. Hopefully, this ‘bad bank’ will be managed professionally to focus on resolving bad loans expeditiously. Similarly, the creation of Alternative Investment Funds is important to avoid an asset-liability mismatch in the banking sector. The formation of DFIs for the infrastructure sector will leave banks to reduce their exposure to the infrastructure sector and enhance credit to other industries like real estate. However, the critical issue is effective implementation. THE GOOD & THE BAD Two major incentives given to the real estate sector are tax benefits for affordable housing and for private investment formats such as REITs and InvITs (Real Estate Investment Trusts and Infrastructure Investment Trusts). Yet, the industry status to real estate was overlooked in the budget. This would have helped the realty firms to acquire loans at lower interest rates, attract equity investment and enabled developers to refinance debts. The liquidity stressed sector was looking forward to easier access to funds and longer repayment cycles. In the commercial real estate segment, the benefits provided to REITs could have been extended to fractional ownership, to encourage more people to invest. In fact, commercial real estate was one of the first segments to bounce back by Q3. However, commercial realty developers continue to pay dual tax of GST on input materials and GST on rent from the completed property: Considering that the real estate sector contributes to over eight per cent of the Indian GDP, the stakeholders expected more. The announcement that can be termed as the most important reform is the creation of an Asset Restructuring Company to purchase the bad assets of the banks to free them from bad debt and start lending. A step welcomed by the industry is the allocation of Rs 54,581 crore to the Ministry of Housing and Urban Affairs in the Budget 2021. The demand for affordable housing is at an all-time high, and with government seeing 'housing for all' and affordable housing as priority areas, the developers in this segment are sure to benefit, In addition, the focus of the government on infrastructural development and MSMEs will lead to job creation, which will help people get financial stability and disposable incomes. The support announced for rental housing too will go a long way in easing the pressures in the rental home market. Not only will the incentives help the lower scale contractors to be "Atmanirbhar" (self-reliant), it will also boost Tier 2 & 3 cities realty markets. Also, provision of no additional tax liability in transactions where the differential between the property’s market value and circle rate is lower than 10% offers some relief to the real estate sector, though applicable only on properties valued up to Rs 2 crore and purchased directly from the developer. Furthermore, the budgets major boost to national infrastructure will stimulate the national economic cycle, job creation and boom in infra related allied industries. The debt financing of InvITs and REITs is an appreciative move as it will enable the real estate and infrastructure sector to attract more investments. Not to be missed, the infusion of capital into India's infrastructure segment, with a focus on improving connectivity, will be particularly beneficial for India's housing sector. In all, the government could have done more by offering short-term easy financing solution to the pandemic-affected real estate industry. WHAT THE BUDGET MISSED

1.  There were no specific announcements to boost the ailing real estate sector other than the extension of existing incentives.
2. Long pending demand of industry status and GST input credit for under construction property was left unaddressed.
3. Market expectations of increased personal tax exemption limits, which would have had a multiplier effect on real estate, were left untouched.
4. The government has not enabled co-working firms to claim input credits on work contract and construction services supplied.
5. The rate of TDS on co-working services was not considered for reduction

BUDGET INSIGHTS The day Union Finance Minister Nirmala Sitharaman presented her third budget that aims to shore up an economy badly-hit by the novel coronavirus pandemic, the Sensex jumped over 1,600 points highlighting the positive market sentiments.  The economy is projected to contract 7.7% in the current fiscal year, although the government forecasts growth of 11% for the coming fiscal year, after a massive COVID-19 vaccination drive and a rebound in consumer demand and investments. Union Budget 2021-22 rests on six pillars – health and well-being, physical, financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and R&D and minimum government and maximum governance. The operational detailing and seamless execution will be the key to success. Budget 2021 seems to be a forward-looking document and aims to revive demand and elevate economic growth. The intention to speed up monetisation of brownfield infrastructure assets by creating a National Monetisation Pipeline will send the right signals to private investors. Setting up of the ARC and AMC to address bad assets while recapitalising lending intuitions and creating a new development finance institution can help trigger lending for infra sectors. However, direct reforms and incentives for one of the largest segments of Indian economy would have had a multiplier effect on national economy.  As Anuj Puri Chairman – ANAROCK Group rightly said, “For the ‘Aam Aadmi,’ personal tax relief by way of tax rate cuts or favourably readjusted tax slabs topped demand and the FM failed to deliver on it. An upward revision in the deduction limit under Section 80C (at INR 1.5 lakh a year) was long overdue and increasing this limit would have increased disposable incomes, inevitably pushing up consumption. It would have also helped improve consumer sentiments across sectors – the real need of the hour.” INFRASTRUCTURE National Infrastructure Pipeline has been expanded to 7,400 projects.  Creation of institutional structures: Rs. 20,000 crore to set up and capitalise a Development Financial Institution (DFI). There is a big thrust on monetizing assets with launch of National Monetization Pipeline. Infrastructure Debt Funds are made eligible to raise funds by issuing Zero Coupon Bonds and some conditions relating to prohibition on private funding, restriction on commercial activities, and direct investment have been relaxed. The announcement to set up 7 mega textile parks with plugand-play facility in 3 years will unlock the potential of new markets for development and provide an impetus to real estate assets, including logistics and warehousing. REAL ESTATE The 2019 budget provided an additional deduction of interest of Rs. 1.5 lakh, for affordable housing loan. The eligibility of this deduction is proposed to be extended by one more year, to 31 March 2022. The affordable housing projects can avail a tax holiday for one more year till 31 March 2022. The government is committed to promoting supply of Affordable Rental Housing for migrant workers. For this, budget allows tax exemption for notified Affordable Rental Housing projects. The big bet for growth and employment generation is expected to be channelized via the infrastructure push, in turn bears two risks at the moment. However, there is the risk of delay in completion of infra projects which leads to cost overruns and as the life cycle of these projects is long, an inventory of funding needs to the ready in the pipeline. Thus, the immediate multiplier effects to lift up the economy might not be visible soon. “The budget does not adequately address concerns over inequitable growth which has been a worry across the globe due to the pandemic. There has been no specific support for sectors stressed due to the pandemic like the hospitality sector,” said HDFC Bank's Chief Economist Abheek Barua.  Though, the real estate sector did not get the special treatment it expected from the Union Budget 2021-22, but some good news did come its way. Specifically, the debt financing of real estate investment trusts (REITs) and infrastructure investment trusts (InVITs) announced in the Union Budget is expected to be a game changer for the fundraising requirements in the real estate sector. According to Hemant Daga, CEO, Edelweiss Asset Management.  “The budget connects capital to infrastructure which has been the biggest missing link. What we now need is meticulous structuring of these initiatives and good execution. A big thrust on monetisation of operational assets like roads, airports, transmission towers etc. is a clear win-win for both the government and investors. This will not only help the government to manage its fiscal deficit, but will also help unlock capital for investing in other Greenfield infrastructure projects.” The devil lies in the details and the success in reviving the economy would depend on effective structural reforms removing barriers to growth. Such as, expanding the definition of affordable housing so as to include homes priced more than Rs 45 lakhs in big metro cities. The real estate players had expected the government to do more for the sector as it would have gone a long way to generate healthier housing demand. This would have had a lasting positive ripple effect on the national economy. This year’s budget, though unlikely to have any immediate impact, will aid the sector in the long-run. Inputs from: Brickwork Ratings, EY and PwC INDIRECT BENEFITS FOR REAL ESTATE

1.  Increasing the safe harbor limit from 10 per cent to 20 per cent would enable the real-estate developers to liquidate their unsold inventory at a rate substantially lower than the circle rate and giving benefit to the home buyers.
2. Extensions in the additional tax benefit of INR1.5 lakh for loan taken to acquire affordable homes would benefit the salaried income group and in turn, reviving the residential real estate.
3. Proposal to extend tax sops for developing affordable housing/ affordable rental housing until next fiscal (31 March 2022) will encourage developers to invest more into affordable housing/ rental housing.
4. Removal of withholding tax on dividends to be paid by SPV to business trusts i.e. to REITs and InvITs, will provide additional liquidity in the hands of business trust though, similar relaxation under the holding company structure has not been provided.
5. Unlocking the value of public lands available with AAI, railways, warehousing and sports related projects can provide the much-needed relief to occupiers/ end users by controlling the real estate prices and can also bring around significant alteration in the residential or commercial landscape of major cities.