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Real estate sector is a key beneficiary of the budget which has many key proposals that will boost the prospects of property developers.
More funds
Access to funds has been a key bottleneck and developers have been burdened with huge debt and high interest rates, while sales have slowed down. Two key proposals in the project should bring relief on this front.
First, introducing Real Estate Investment Trusts (REITs) should help attract new funding. Tax structure was a major hurdle in REIT structures and the proposal to allow pass-through status is positive. REITs will increase liquidity as developers and private equity funds can exit their commercial investments.
Developers such as DLF, Prestige Estates, Godrej Properties and Phoneix Mills with a large commercial property portfolio will benefit with this proposal.
Also, the liberalisation of FDI norms in smart cities should bring in more funds. The limit is now extended to projects with a built-up area of 20,000 square meters (from 50,000 square metres) and capital of $5 million (from $10 million). The lower threshold limit, along with more favourable terms for low-cost housing will aid township developments.
Mahindra Lifespace will be a main beneficiary, given its presence in large township construction and low-cost housing development segments.
Demand growth
Other budget proposals should alleviate the issue of falling demand and help spur buyer sentiments.
The main proposal that will boost home buyer enthusiasm is the increase in interest deduction limit on self occupied homes from ₹1.5 lakh to ₹2 lakh. Home loan interest rates have been hovering high, dampening buyers' appeal. Also, the increase in income-tax exemption limit and the promise to get closure on GST implementation (which could lead to lower indirect taxes) can be positive to revive demand.
The push for developing smart cities and providing better urban infrastructure such as road connectivity and civic amenities should attract buyers.
Renewal in demand will be positive for developers such as Puravankara and Ashiana Housing who develop mid-income housing.
Other beneficiaries
Besides these proposals that are positive for almost all players in the sector, plans to offer incentives to low-cost housing development should attract more developers to expand in this segment. National Building Construction Company (NBCC), a public sector developer, should benefit from this urban development projects.
The revival of SEZ will boost the prospects of Mahindra Lifespace, which has two SEZ in operation and is working on developing one more. SEZ developments were hit after MAT was imposed from April 2012 – of the 566 approved SEZs, only 185 are operational.
Mumbai-based HDIL, a big player in slum redevelopment, should reap the benefit of including this in the list of Corporate Social Responsibility activities.
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