Trickle-down effect

Trickle-down effect
ET Realty, July 17, 2009, Page 25

The focus of the Budget has been on creating a broader economy-wide revival than on sector-specific incentive framework. This will yield dividend to realty sector also, ET Realty reports

Prabhakar Sinha

On the face of it, 2009-10 Budget seems to be disappointing for the real estate sector - it has not delivered much to the housing sector, directly. But analysts and developers feel finance minister Pranab Mukherjee did the right thing in addressing the main issue of an economic slowdown that the country is facing in the Budget, in the wake of a global recession. However, some of them argue the government should have given some sops to the real estate sector directly, which would have helped in reviving the economic growth in the country.

Ramesh Chandra, chairman of the second largest real estate firm Unitech Ltd, says that keeping in mind the 6.8% fiscal deficit, it was not possible for the finance minister to match all the expectations. Global real estate research firm, DTZ, in a report says 2009-10 Budget focuses on longterm economic development. The report f u r t h e r adds that e x p e c t a - tions of real estate participants were not addressed specifically, though the sector benefits indirectly by the fillip given to infrastructure development, consumption, and employment-related programmes and measures.

Kapil Wadhawan, vice-chairman and MD of Dewan Housing Finance Corporation, says the continuation of the stimulus packages for 2009-10, which were announced by the government early this year to contain the economic slowdown, led to the fiscal deficit of 6.8%. Had the government not continued with those packages, the economy would have been affected by the global slowdown, and this would have affected realty sector adversely. He added that if the economy revives, realty sector will also get back on track even without specific package for the sector.

Clearly, the focus has been on creating a broader economy-wide revival than on focusing on establishing sectorspecific incentive framework, the DTZ report says. Anshuman Magazine, CMD of global realty research firm CB Richard Ellis, South Asia, is of the view that the focus on infrastructure and providing more funding, especially for highways and railways, are the positive aspects of the Budget. The Jawaharlal Nehru National Urban Renewable Mission (JNNRUM), Mathur said, has been a very successful initiative and on the back of its success the FM increased allocation to it by a massive 87%, to Rs 12,887 crore. This scheme directly touches the urban fabric of the country and with real estate matters largely being a state subject, the central government through this tool will have the ability to initiate far-reaching reforms in the industry. This will provide impetus in creating urban infrastructure and bring in large land areas into the mainstream, where affordable houses could be developed.

There are several announcements relating to housing sector in rural areas. The Budget provides for interest subsidy on home loans up to Rs 1,00,000. Allocation to Indira Awaas Yojna increased by 63%, to Rs 8,883 crore. The Budget has also provided Rs 2,000 crore for Rural Housing Fund (RHF) to National Housing Bank (NHB) to boost its resource base for refinance operations in rural housing sector. It has also given Rs 1,000 crore for the housing of paramilitary forces. Allocation for Bharat Nirman has also been hiked by 45%.

Enhanced allocation for the Commonwealth Games in 2010, from Rs 2,112 crore to Rs 3,472 crore, will also go a long way in improving the condition of NCR, which will in turn help the realty sector. Vijay Jindal, CMD of SVP Group, concurs with this and says, "There are many positives that we can take out from this Budget." Allocation for NHAI has increased, which will mean better connectivity and hence a boost to the values of real estate along these routes. The increase in allocation for JNNURM will also come as a shot in the arm to mass housing on the outskirts of metros, Jindal adds.

Government has allocated Rs 1,00,000 crore to India Infrastructure Finance Company Ltd (IIFCL) to fund infrastructure projects in the country. In fact, analysts also say due to global slowdown, prices of commodities like steel and cement have fallen substantially from the peak level of last year, which is helping developers in constructing affordable houses. While real estate has not seen a direct mention in the Budget speech, DTZ report said, various consumptiondriven benefits may accrue to this sector in the near future.

By increasing allocation to the NREGA, government is hoping for a more inclusive employment and broad-based consumption revival. However, while a lot was expected in the first Budget of the newly elected government, real estate sector has been given a miss by the finance minister. Developers feel measures like reintroduction of 80 IB would have helped builders in constructing affordable houses. Under this act, the profit made on small-size housing projects of less than 1,000 sq ft in metro cities are exempt from taxes. They were also expecting a good increase in Income Tax exemption limits to help increase the buyers' purchasing power. But at the same time, the most important factor that affects realty sector is the interest rate. The slowdown in economy has affected the government's revenue adversely, while the stimulus packages have increased its spending. This has already taken the fiscal deficit to all time high level of 6.8% of GDP. Had the government accepted all the demands of industry, fiscal deficit would have further gone up, which would have increased the demand for government's borrowings leaving only a small quantum of resources for private sectors, including home loan borrowers.

FOCAL POINT

The Budget provides for interest subsidy on home loans up to Rs 1,00,000. Allocation to Indira Awaas Yojna increased by 63%, to Rs 8,883 crore The Budget has also provided Rs 2,000 crore for Rural Housing Fund (RHF) to National Housing Bank (NHB) to boost its resource base for refinance operations in rural housing