Budget 2017: Impacts on Infrastructure and Real Estate
The finance minister presented union budget 2017 in the parliament on 1 February 2017.Here we have analyzed the impacts of all provisions of the budget which are made for infrastructure and real estate sectors.
The Union Budget 2017 was presented in the parliament on 1 February 2017. The budget gave infrastructure status for affordable houses and it also promised tax relief for real estate developers. These are some of the positive steps taken by the government for infrastructure and real estate sectors. Here we have explained all the budget proposals for real estate and infrastructure sectors and their impacts in detail.
1. The Infrastructure of Roads and Railways
In budget 2017, a total investment of Rs3, 96, 135 Crore on infrastructure is set up by the government. 10% over FY17 revised estimate. The roads and highways allocation was increased up to Rs64,900 Crore from Rs 52,447 Crore.
The budget announced that rural roads construction work would be accelerated to 133 km/day in 2016-17 from 73 km/day in 2011-14. And railway was given an 8% increase expenditure and it got the allocation of Rs 1, 31, 000 Crore.
Apart from it, 3,500km of railway lines would be laid in 2017-18 against 2,800km in 2016-17.
Impact: The increase in road construction would ensure better days ahead for road construction firms by way of fresh tenders and road projects.
In increased budget of railways would benefit companies that offer track-laying and electrification services and carry out civil services.
With the growth of infrastructure cement and steel sector should do well because these two are most used products in the work of construction.
2) Budget gave Infrastructure status to Affordable Housing
Impact: Union Budget 2017-18 provided the much-awaited and demanded “Infrastructure” status to affordable housing. The step is well positioned with the government’s agenda of ‘Housing for All by 2022. This will help in providing easier access to capital for developers and in lowering rate with a longer amortization period.
More than this, it allows the access of developers to tax incentives and viability gap funding. For affordable housing purpose, there is a positive change in the way carpet area is counted. Now, the government has changed the carpet area for affordable housing purpose.
From now on, the 30 sqm limit will apply only in 4 metropolitan cities while for the rest of the country including the peripheral areas of metros, limit of 60 sqm will apply.
The announcement of the interest subvention of 4% and 3% on loans up to Rs 0.9 million and Rs 1.2 million respectively would boost the buyers of affordable housing.
3) The agenda of 1 Crore homes
Impact: To stimulate the rural housing sector in India, Rs 230 billion has been earmarked under the Gramin Pradhan Mantri Awas Yojana. The government aimed to promote affordable housing in both cities and rural areas. The government plans to construct 1 Crore homes by 2019.
Presently, the housing sector is flourished mostly in Tier-I and Tier-II cities in India. However, the scheme will create necessary housing to the poor and it will also promote the residential sector in rural areas.
4) Tax exemptions for notional rent income on unsold unoccupied completed projects
Impact: The budget announced a tax exempting rule for the developers. Currently, the unoccupied houses which have got completion certificates are subject to tax on notional rental income.
The new rule will be applicable after one year of receiving the completion certificate. The law will grant some required time for developers to liquidate their inventory.
5) Reduction in Holding period for immovable assets and Change indexation be shifted from 1.4.1981 to 1.4.2001
Impact: The budget announced that the holding period would be reduced to 2 years from 3 years and it changed base year indexation from 1.4.1981 to 1.4.2001. It is a significant step regarding capital gains taxation provisions on land as well as buildings.
The amendment in the base year indexation and reduction in the holding period will significantly reduce capital gains tax. It will provide tax relief for several asset holders.
It will also expand the government’s tax base through an immovable property. It will also motivate the mobility of capital assets.
The proposed taxation provisions would make property holders to be engaged in the sale of real estate, as consequence it will turn out to be a much-needed fillip to the sector.
6) Allocation of Rs 200 billion to National Housing Bank (NHB) for refinancing individual housing loans in 2017-18
Impact: The National Housing Bank was allocated Rs 200 Billon for refinancing individual housing loans in 2017-18. The demonetization of higher currency notes in November 2016 has resulted in surplus cash within the banks. It allows major banks to lower their lending rates.
And it will also be a reason to cheer for homebuyers who have already taken a flexible housing loan. However, the refinancing scheme will encourage the sentiment of current homeowners, especially those who were subjected to high lending rates in the past.
7) Increase in investment in infrastructure and development projects
Impact: This year’s budget followed the announcement of several major infrastructure projects of 2016. The union budget 2017 gave one of the biggest budget allocations for the infrastructure sector. About Rs 64.9 billion for highways and Rs1310 billion are allocated for railways which include 2,000 kms of coastal roads, smoothening better connectivity between major port cities such as Mumbai, Kochi, Chennai, and other cities and small towns.
Similarly, an investment would be made for airports in Tier-II cities for maintenance and operation through the public-private partnership (PPP) model. The government has also planned to enhance the current state of infrastructure in India with an aim to create a state of the art infrastructure network.
Improved infrastructure would defiantly attract the attention of foreign investors and it will enhance investment in the real estate sector.
8) Joint Development Agreement (JDA) signed for development of property
Impact: After the signing of Joint Development Agreement for the development of the property, the capital gains tax will be deducted in the year of completion of the project.
Despite several other provisions to lower capital gains tax, this step will provide tax relief not only to the landowner but also the builder/promoter. So it will be helpful in reducing their liability.
9) No cash transaction above INR0.3 million (USD4439) permitted
Impact: Extending the effects of demonetization drive, the government has planned to disallow any cash transaction above INR0.3 million.
The real estate sector had witnessed several cash transactions before the demonetization drive. Developers and buyers had turned cautious after demonetization with a notable reduction in the number of cash transactions. This will also end the flow of black money into the real estate sectors.
10) Abolition of Foreign Investment Promotion Board (FIPB)
Impact: In last two years, the government has made several reforms to encourage Foreign Direct Investment (FDI) in India. At present more than 90% of the total FDI inflows happens through an automatic route. In this budget, the government has decided to abolish the FIPB in 2017-18.
This reflects the government’s motto of further liberalizing FDI norms and get foreign investors. Under this automatic route for FDI, the foreign investors will not be having any need of a prior approval from the FIPB. International investors would be satisfied with the progress on the fiscal responsibility roadmap which is always critical from their perspective and abolition of Foreign Investment Promotion Board would provide some relief to them.
11) Introduction of innovative land-pooling mechanism
Impact: The budget 2017 introduces the innovative land-pooling mechanism for the development of the new state capital of Andhra Pradesh. The capital of Andhra Pradesh is being constructed by an innovative land-pooling mechanism without the use of the Land Acquisition Act. In India, land acquisition remained a much-debated issue and a major hindrance with respect to large-scale developments.
The new land pooling mechanism would help in significantly reducing land related disputes and increasing the speed of development. The exemption of capital gains tax will boost the confidence of landowners whose land is being pooled for the construction of the capital city under the government scheme.
However, the exemption is only meant for those who were the owners of such land as of June 2, 2014, the day when the state of Andhra Pradesh was reorganized.
Infrastructure and Real Estate are key sectors of any economy. The quality of Infrastructure sets the quality of growth of any economy. And real estate is significant sector because it fulfills the basic necessity of the people i.e. housing.
Overall, it was a positive budget for the infrastructure and real estate sectors. The government has done a great job to grow and develop infrastructure and real estate sector which play a significant role in the growth of the country in upcoming year.