Budget 2020 - Why the FM needs to give more attention to commercial realty

In the last few years, the commercial real estate segment has shown remarkable growth, in contrast to the slump in residential realty. If commercial realty is able to perform well, in spite of the lack of attention and little policy support from the government, then, it can do much better if the government pays a little attention to it, in the upcoming budget. The commercial realty segment provides jobs to millions of people and has a significant share in the growth of the Indian economy.

The importance of India’s commercial real estate segment

“Commercial real estate is one of the biggest employment creators and transaction volumes in this segment are immense. With more jobs being created and substantial funds at its disposal, it can contribute to the growth of numerous other sectors. It can positively impact the purchasing power of a major part of the population and ultimately create more buyers and boost the residential realty market, as well, which is currently struggling to lure buyers. The government, hence, can leverage commercial realty’s progress, to boost the economy further and benefit other sectors,” says Animesh Tripathi, director, office services, at Colliers International India.

In 2019, the commercial real estate segment witnessed PE inflows of over USD 3.3 billion. A thrust to the segment would result in more foreign investments and with it, more taxes for the government from new corporations entering the market. The growth of commercial realty also plays a pivotal role in the overall development of a city or town, by generating employment opportunities, better facilities and improved standards of living. All this would boost the country’s infrastructure growth.

Policies and sops in Budget 2020 that can boost the commercial real estate segment in India

According to Amit Goenka, MD and CEO at Nisus Finance, it is imperative for the government to permit tax relaxations, as well as provide smooth access to credit, for the developers of new asset classes such as co-working spaces, serviced office spaces, co-living spaces and light industrial spaces. “Incentives in GST, including input tax credit at a lower slab of 5%, deferment of income and capital tax to the landowner and developer till the completion of the asset, reduced tax rates for development of IT/ITeS and large business centres, reduced stamp duty on purchase of land for such developments and credit guarantee schemes, will also bode well for the segment. SMEs and start-ups operating in modern developments may also be exempt from GST and provided reduced tax slabs or tax exemption for a few years,” Goenka suggests.

According to realty experts, there is ample scope for streamlining processes. A faster approval and verification process, coupled with industry-friendly norms and regulations, would significantly ease the already stressed sector and result in faster delivery and better quality of projects. Some also maintain that the development of commercial real estate should be classified as infrastructure development, so that the segment can have access to cheap global credit and attract the participation of various bi-lateral and multi-lateral agencies in equity and credit, in greenfield, brownfield and completed assets.

Tripathi points out that the liquidity crisis has resulted in elevated financial costs and although the FM has provided a relief fund for distressed assets, more effective measures are required, to revive the sector financially.

“There should be a proposition for improving the cost of financing as well,” he adds. Another critical aspect impacting the commercial realty sector is the SEZ Sunset Clause, which can be extended from 3 to 5 years. Better planning and execution of the government’s flagship ‘Smart Cities’ mission, could propel the number and pace at which these cities become a reality all over the country. Finally, ensuring better infrastructure, including public transport, will immensely benefit the growth of commercial realty and in turn, draw in more talent and generate more employment.

Budget 2020: Expectations of the commercial real estate segment

Single-window clearance for all approvals for commercial parks.
Structured funding availability for ‘built-to-lease’ assets, through banks.
Efficient public transport.
Single portal for land title verification.
Relaxation in taxes on leased assets.
Rationalisation of stamp duty.

Budget 2017: Reforms that the realty sector needs the most

With the real estate sector having its own list of demands and hopes from the union budget 2017-18, we look at some of the measures that could bring about constructive reform and positively impact the sector

January 31, 2017: As budget 2017 closes in, the real estate market is ready with its list of demands from the finance minister. Of these, some demands have a good chance of being addressed in the upcoming budget session.

Reforms that the realty sector needs

Sachin Bhandari, CEO of VTP Realty, expects budget 2017 to bring more clarity in key reforms. According to him, the following are the steps required:

“Reforms in labour law: India has an intricate number of laws governing labour regulation. Single-window labour compliance process for industries, friendlier provident fund (PF) facilities, improvement in the ‘Rashtriya Swasthya Bima Yojna’ and focus on skills development and apprenticeship training, will have a positive impact on the realty sector in the long run. No matter how crucial these reforms are for the benefit of India’s economic future, their success depends on how the government implements them, given the large population of our country.

Reforms in consumer protection law: Our government recently introduced a new Consumer Protection Bill, which promises to address consumer matters in an all-inclusive way, by offering executive, quasi-judicial and judicial remedies. This is important, as grievance redressal will be faster and it will ensure more transparency by standardising business practices and transactions.

Reforms in the RBI Act: This will ensure value and transparency to monetary policy decisions, which is a must for the real estate sector. This will also help to contain inflation and maintain stability in real estate prices.”

Measures that could boost home buying

Home loan seekers are also hoping for an increase in the present interest deduction under Section 80C, from Rs 1.5 lakhs to Rs 2.5 lakhs, as well as further benefits/deductions on the repayment of the principal sum, borrowed for purchase or construction of a residential house property.

“In accordance with the taxation provisions, in case of individuals, income tax is levied on the notional income on additional house property, which is deemed to be a let-out property under the Income Tax Act. Consequently, individuals are made to shell out tax on notional income.

The concept of taxability of deemed rent on notional basis, is expected to be withdrawn,” feels Nishit Dhruva, managing partner, MDP & Partners.

Experts believe that the government may also look at long-term funds to boost the infrastructure sector. Hence, it may be apt to re-introduce a deduction like Section 80CCF for investment in long-term infrastructure (earlier introduced in AY 2011-12 and AY 2012-13), to finance the infrastructure sector. This deduction could be introduced with a limit of Rs 50,000, which will boost real estate development.

Key expectations from the Union Budget 2017-18

Key expectations	Current status
Clarity on key legislations and easing of REIT guidelines	GST bill passed in August 2016; four-tier GST rate structure of 5%, 12%, 18% and 28% across commodities has been proposed. May 2017 deadline set for implementation of the Real Estate Regulation Act (RERA); states have begun finalising rules. Further easing of REIT guidelines in November 2016.
Urban infrastructure schemes such Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and Smart Cities mission	60 smart cities announced so far and granting of investments underway. Almost 490 projects, with an investment of Rs 6,571 crores in 2016, have begun under AMRUT.
Pradhan Mantri Awas Yojana (PMAY), affordable housing and easing of home loan rates	100% service tax exemption for construction of affordable housing, under government schemes. In November 2016, the government allowed online application for affordable homes under PMAY (urban). On December 31, 2016, the government announced a 4% and 3% interest rate rebate for housing loans up to Rs 9 lakhs and Rs 12 lakhs, respectively. Additionally, loans of up to Rs 2 lakhs for new housing/ extension of housing in rural areas, will receive an interest subvention of 3%.

Note: Data provided by CBRE Research, highlighting the key expectations from the upcoming budget

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Amit Sethi

Amit Sethi is an accomplished professional with a distinguished background, holding an MBA in Finance. As an Independent Journalist and Data Provider with 20 years of invaluable experience, his expertise lies in meticulously covering stories on Real Estate, Personal Finance, Business and Banking. He writes journalistic content for leading media publications in India and also provides analytical data to real estate and fintech companies. Amit is driven by a purpose to disseminate insightful narratives, using verified information to empower individuals with financial literacy. Through his work, he aims to assist people in staying aware and making informed decisions that positively impact their financial well-being. Amit is a fitness freak, a marathoner and likes trekking.