Mar 2, 2016

Impact of Budget 2016 on Real Estate

The real estate sector received significant impetus, with the budget addressing some challenges faced by end-users, investors as well as developers. Some of the key features with respect to housing and infrastructure have been outlined as follows:

The exemption of Dividend Distribution Tax (DDT) for Special Purpose Vehicle (SPV) of REITS in the Union Budget is a welcome move. Till now DDT was applicable on SPVs, which was a huge hindrance in the introduction of REITs investments, making them less attractive. This move is likely to please the institutional investors who view India as an untapped market for this asset. However, abolishment of DDT alone may not be sufficient enough for companies to launch REITs in the coming months. 
100% deduction of profits to an undertaking from a housing project for flats upto 30 sq. metres in four metro cities and 60 sq. metres in other cities, approved during June 2016 to March 2019, and is completed within three years of the approval. Minimum Alternate Tax will, however, apply to these undertakings. This may increase interest of developers to construct affordable housing projects and help in contributing in the “Housing for All” scheme.
Service tax exemption for construction of affordable housing up to 60 sq. m. under state and central housing scheme. The exemption will provide impetus to the affordable housing segment predominantly the 1 BHK or smaller units as property purchases will become more affordable. 
Modernization of land records program to be revamped under Digital India initiative of the central government. The Government has allocated INR 150 crore towards the initiative and will be implemented from 1st April 2016.

The first time homebuyers get an additional INR 50,000 tax deduction on interest paid for a loan amount less than INR 35 lakhs and for a house value less than INR 50 lakhs. 
Total budgeted outlay of INR 2.21 lakh crores earmarked for infrastructure including INR 2.18 lakh crores on roads and rail for 2016-17, 22% higher from previous fiscal. Increased expenditure in developing infrastructure is a key step towards sustaining and improving the growth momentum. Infrastructure initiatives will attract further investments in other allied sectors.
The Model Shops and Establishments Bill to be circulated soon will give choice to shops to remain open on all seven days of the week providing filip to the unorgnised sector. 
Plan to revive 160 unserved and underserved airports and airstrips in partnership with the State Governments to enhance regional connectivity with estimated expenditure of INR 50-100 crores each. Additionally, 10 non-functional airstrips with AAI will also be developed. This is expected to improve connectivity to various small cities and town and can also improve economic prospects of the cities where these airports and airstrips are identified. 


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