1. Home
  2. Business
  3. How the upcoming budget can help...

How the upcoming budget can help real estate

New Delhi: The forthcoming budget announcement by the financial ministry of the new government is a critical one. It will be the first step on the ‘walk' that must follow the electoral ‘talk' of economic
India TV News Desk June 26, 2014 17:56 IST
India TV News Desk
New Delhi: The forthcoming budget announcement by the financial ministry of the new government is a critical one. It will be the first step on the ‘walk' that must follow the electoral ‘talk' of economic recovery and ushering in new, growth-oriented policies for the country. At this stage, every industry in the country - from textiles to agriculture, from aviation and tourism, from manufacturing to banking and allied financial services, from pharmaceuticals to information technology, from telecommunications to healthcare and from retail to real estate, depends on major fiscal reforms.

It is not only India's continued viability in the global sweepstakes that is at stake now. The very welfare of its people and a revival of their trust in their country are on the ‘critical' list. Over the past few years, the confidence that Indians have in the power of a ruling government to revive its flagging fortunes has been esriously eroded. Bureaucratic muddle, corruption and policy paralysis have become accepted norms. The arrival of a new and very proactive government at the centre is the first sign of real hope for positive change.

Boost Industrial Expansion And Output

A country's economic health rides on how well its primary industries perform. It depends on how encouraged these industries are to expand, how many jobs they create in the bargain, to what degree foreign funds are attracted and encouraged to invest in various industries, and how much consumption increases because of all these factors. The consumption sentiment is one of the most critical, because it dictates how well various sectors will perform.  

Real estate is just one of many major industries in India. A government focused on the country's overall economic revival must consider the needs of all its industries. This holds true even if real estate is an industry that, unlike other industries such as electronics and luxury apparel, addresses very visible deficits. Residential real estate addresses the deficit for housing in India, while consumption of commercial real estate is directly related to how many jobs will be created in a certain city.

Increase Financial Confidence And Boost Consumption

Given that overall consumption sentiment is key, the new government will primarily need to present a budget that increases Indians' financial confidence. To achieve this, it will have to introduce a more benevolent taxation regime. Specific to boosting the real estate sector, the government must formulate and present a policy which provides clear and attractive tax benefits to developers who are focused on affordable housing. At the same time, raising the income tax exemption limit for home loans from the current Rs 1.5 lakh to at least Rs 5 lakh would encourage Indians to buy more homes.

Such measures are very much within the purview of the upcoming budget, which must also ensure that it provides incentives to boost entrepreneurial spirit and generally help Indians to earn more, save more and invest more. It is axiomatic that the real estate industry, as well as various other industries, will see significant revival merely on the basis of such a rebooted climate of confidence.

Provide Infrastructure Status For Housing

Real estate faces several hurdles other than flagging consumption sentiment that have harmed it immensely over the past few years of sectorial slow-down. Clearing all these hurdles in a single revamp of existing policies would be extremely challenging, if not impossible. However, one game-changing measure that new government can certainly undertake in the immediate future is to grant infrastructure status to the housing sector.

In the past, such a provision has proved to be a major turning point for the real estate sectors of many other countries, enabling them to significantly narrow their housing deficits. While such a measure would not fall within the ambit of budget announcement, it can and should be addressed in the ensuing parliamentary monsoon session.

So far, India has only provided infrastructure status to industries and companies involved in the development of ports, airports, highways, public transportation networks, etc. By granting the housing sector infrastructure status as well, the new government will ensure that housing developers become eligible for critical incentives and subsidies at the Central and State levels. It will also mean that institutional lending to the housing sector becomes more liberalized - banks will increase lending to housing developers, who will also be able to raise bonds to help generate funding for housing projects.

Kishor Pate, CMD - Amit Enterprises Housing Ltd.