The interim budget 2019 of the Narendra Modi government, is no different from previous budgets of India, where the demands of the real estate industry and buyers revolve around the housing market only. This can lead one to wonder, whether there is any space for commercial real estate in the interim budget. The ground reality is that the commercial real estate segment is just about one-fourth of the residential market. Nevertheless, it is the demand for office space that indicates the future road map of the real estate business. The demand for office space is generally the outcome of a healthy economy that creates more jobs, thereby, leading to greater demand for housing. This increase in consumption demand, is reflected in the growth of retail real estate.
Announcements in the interim budget 2019 that could have a direct bearing on commercial real estate
- Job creation (However, any move in this direction, could be seen as one motivated by political gains in mind)
- Relaxed FDI for retail (This move is unlikely before the elections)
- Incentives for SMEs (Could lead to demand for more office spaces)
In terms of job creation, the government’s claims about employment have been contested by analysts. Independent employment monitoring agencies claim that there has been a fall in employment, across 27 sectors. This may be a difficult issue to address in the interim budget alone.
Demand for commercial properties to remain strong, say developers
Industry stakeholders, nevertheless, remain bullish about the prospects of the commercial real estate segment. Dhaval Shah, joint managing director of the Parinee Group, points out that a lot of office spaces and commercial buildings are coming up in locations like Andheri west, Bandra-Kurla Complex (BKC), Worli, etc., in Mumbai. He attributes this to the foray of foreign brands, the advent of the start-up culture and the increasing trend of shared office spaces or co-working spaces. “Earlier, the offices used to be of large floor plates but the recent trend is of small spaces, starting from 600 sq ft, with dynamic amenities and features. Nowadays, it is no more just a working space but a combination of leisure, entertainment and wellness. The creation of jobs is another reason for the increased demand for commercial spaces,” says Shah.
Aditya Kedia, managing director of Transcon Developers, says that as per research, India is slated to become a USD five-trillion economy, by the year 2025. The commercial segment of Indian real estate has witnessed an upsurge, owing to positive returns on investment for properties in the right location.
“With the burgeoning job opportunities in tier-1 cities like Mumbai, Pune, Bengaluru, Hyderabad and Delhi-NCR, developers are constructing projects that are attracting corporate tenants, which yields good rental returns over prolonged periods. Interestingly, the demand is extending to tier-2 and tier-3 cities. The increasing avenues of employment, have further created demand for co-working and serviced office spaces. These segments are set to see a significant spike, over the next few years,” Kedia elaborates.
Scope for sops for commercial realty in the interim budget
Nikhil Hawelia, managing director of the Hawelia Group, however, maintains that other than some policy announcements for the retail sector, an interim budget does not have the scope to offer anything substantial for commercial real estate. According to him, for the real estate sector, the union budgets in India have always been about the housing market and commercial realty has only benefitted or been hurt by certain broader policies affecting the segment. “The budget, after all, is only the vision document. The devil lies in the details. For example, even if the government announces certain policy guidelines for retail or job creation, the actual implementation is subject to the guidelines that follow the budget announcement. In contrast, any announcement for tax benefits to home buyers or tax cuts on building inputs, will have a direct bearing on the housing market,” he explains.
In a nutshell, there are limited options for the outgoing government, to announce anything drastic that could have a direct bearing on commercial real estate. While some avenues may exist, the question is whether the government would be willing to gamble, just before the elections.
(The writer is CEO, Track2Realty)