RICS on Union Budget 2009-2010: A fine balancing act aimed at a higher economic growth
RICS believes that the Government has treaded a line of fine balance to lead the economy to high GDP growth rate by investing in infrastructure sector, yet keeping the fiscal deficit within manageable limits which has already undergone a substantial deviation at 6.8% from 6.1% at the time of interim budget.
Tweet-- RICS believes that the Government has treaded a line of fine balance to lead the economy to high GDP growth rate by investing in infrastructure sector, yet keeping the fiscal deficit within manageable limits which has already undergone a substantial deviation at 6.8% from 6.1% at the time of interim budget. In the backdrop of ambitious ‘housing for all’ and ‘Slum free India’ agenda, the rural and urban housing sectors have been given due importance, however largely through Government’s flagship programmes rather than the incentives real estate development companies were hoping for. Following announcements are likely to positively impact the real estate and construction industry
· Increase in JNNURM allocation by 87% is going to benefit infrastructure, as this innovative and ambitious scheme is reshaping many states but the originally allocated funds were inadequate and this increase will provide the requisite funds to continue to focus on infrastructure, basic services and governance reform. Over 15 lakh houses are under construction for the urban poor.
· Slum free vision has been accompanied by 3,973,000 cr allocation for housing for urban poor under the Rajiv Awas Yojna under JNNURM. Although the government has not given separate incentives to the real estate industry to build low cost houses, they have certainly acknowledged the need and tried to address the situation through this scheme.
· Stepping up of allocation by 45% for Bharat Nirman and specifically 63% to (Rs 8883 crore) for the successful Indira Awaz Yojna for rural housing. Also, 2000 crore fund for rural housing under NHB will help address the ‘housing for all’ agenda
· Increase in Common Wealth Games funds from 2112 crore to 3472 crore will benefit the infrastructure and real estate sector especially hotels in the NCR region. There is a shortage of 30,000 hotel rooms and this financial aid is likely to help bridge the shortfall in time.
· As expected, the budget gave greater flexibility to the India Infrastructure Finance Company Limited (IIFCL), which has been set up as a refinancing facility for infrastructure projects, to deploy funds; IIFCL will be allowed to refinance 60% of bank loans for PPP infrastructure projects; Allocation of National Highway Authority of India (NHAI) increased by 23% and NRHM allocation to be raised by Rs 257 crore – both are also positive announcements to boost infra sector.
· Full exemption from excise duty on pre-fabricated concrete slabs will help the construction industry
As rightly mentioned by the finance minister, there is only so much that a budget can achieve. While the above mentioned initiatives have been welcomed, a number of industry’s expectations (some of whom have been long standing demands) have been left unfulfilled -
· While the government has focused on the infrastructure and housing agenda, it has largely been as part of their various flagship programmes and not from the perspective of the real estate and housing sector. The industry had hoped for reintroduction of tax exemption for developers under Section 80IB (10) of the Income Tax Act, encouraging construction of small units at affordable prices. Other fiscal incentives to encourage ‘affordable mass housing’ with unit sizes ranging between 300 sq ft and 1,000 sq ft were also expected
· The industry was hoping that Group housing and integrated township development to be brought within the definition of infrastructure. This would have gone a long way in reducing the risk weight age associated with the sector and allow banks to provide cheaper credit to the sector. However no announcement in this regard has been slightly disappointing
· RICS was expecting that the government would encourage home sales by increasing the housing loan interest deduction limit to atleast Rs. 2.5 lakh per annum and principal repayment limit from Rs 1 lakh to Rs 2 lakhs. However this does not seem to have featured in the overall priorities for exemptions
· Also, it was hoped that that interest rates for loans in the range of Rs. 5 lakh to Rs. 30 lakh would be lowered to 7.5 per cent but the finance ministry seems to have not concurred with this proposal
· Restructuring allowed up to June 2009 had provided immense relief to developers facing acute liquidity crunch and difficulties in servicing debts. As the recovery is likely to take more time, the industry had hoped for an extension on allowance of restructuring, wherever required, as has been done for other ailing sectors that are taking longer to recover amidst pro-longed tough conditions.
· While a one year extension of 100% tax holiday has been provided for EOU units, the industry had expected that STP / EHTP would have also been allowed this extension for at least another 5 years.
From a more generic perspective, the budget has brought relief to Corporate India in form of the following tax reforms
– Abolition of fringe benefit tax (FBT) and Commodities Transaction Tax (CTT)
– Single unified Goods and Services Tax (GST) coming into effect from April 2010
– Elimination of surcharge on personal income tax by 10%
– Exemption limit for income tax raised by Rs10,000 and Rs. 15,000 for senior citizens
Notes to Editor
About RICS
RICS is the world’s leading professional body in land, property and construction with over 150,000 members in more than 146 countries practicing in 17 specializations. RICS is governed by a Royal Charter approved by the UK Parliament which requires it to act in public interest rather than simply advancing the interests of its members. To this end, RICS has developed and operates high standards of entry to the profession together with a continuing commitment to maintain and advance the highest technical, professional and regulatory standards covering all aspects of property, construction and associated environmental issues. Since 1868, RICS has been committed to setting and upholding the highest standards of excellence and integrity – providing impartial, authoritative advice to governments and policy-makers on key issues affecting businesses and society.