Budget In Review - The Real Estate Sector
If you’ve been following the happenings in the commercial real estate sector of 2020, you might have noticed that despite the initial fall off faced due to COVID 19, the industry is slated to bounce back strongly. Taking a look at the numbers - there was a massive 36% decline in office leasing over the first two quarters, probably even an all-time high in terms of vacancies.
However, over the last two quarters, the industry bounced back pretty well, with a net absorption increase of 63%. New completions were up by 59% too (quarter on quarter basis) - with an additional 4.1 million square feet of new supply entering the market.
Entering 2021, commercial real estate in India is reported to be one of the fastest-growing sectors and has a major role to play in the growth of the Indian economy in the upcoming years. With COVID restrictions easing and the ongoing administration of vaccines, the outlook for the commercial real estate sector is bright, with peak absorption levels expected at Q2 and beyond.
Budget Breakdown
Residential Real Estate Shines
The budget did deliver for the real estate sector as a whole, though not directly as many expected. There was further reinforcement towards affordable housing (houses valued up to INR 45 Lakhs), as the interest payment relief of INR 1.5 Lakhs on housing loans is extended till 31st March 2022.
There was also a new tax exemption for specific rental housing projects, as a part of the “Housing For All” initiative. The residential real estate hence got some direct mention & focus, the commercial real estate sector while did not receive a direct mention, will however be a beneficiary through several indirect measures .
Infrastructure
Several infrastructural projects were announced, indirectly benefiting the commercial real estate sector. These include the introduction of the metro network to several tier-2 cities and the outskirts of certain tier-1 cities. Two new metro technologies, the MetroLite and MetroNeo, promise to bring the same comfort, safety and conveniences, at a much lower price. Additional funds are to be provided for further development of the metro network in cities like Kochi (1957.05 crores), Chennai (63,246 crores), Bengaluru (14,788 crores), Nagpur(5976 crores), and Nashik (2092 crores) with several additional highways introduced in Tamil Nadu, Kerala, West Bengal, and Assam.
With increasing spends on connectivity, we will clearly see the rub on impact on the real estate sector including that in tier-2 and tier-3 cities.
MSME Benefits
Over the last couple of years, there has been a massive push made by the government for MSMEs in India. Schemes such as Make in India, Atmanirbhar Bharath, among others, have created a higher focus on the sector. This trend has continued with the government doubling down (quite literally) in these schemes by proposing a 200% increase of allocation to support MSMEs, with a provision of INR 15,700 crores.
Apart from the obvious impacts on the MSMEs, these benefits will also carry over to the commercial real estate space. Coworking spaces, in particular, will see a huge boost in demand after these efforts, as a vast proportion of clientele belongs to the MSME category.
Easier Access To Finance
REITs (Real Estate Investment Trust) and InvIT (Infrastructure Investment Trust) are set to be allowed to utilize debt financing, and taxes on dividends of InvITS and REITs are set to be exempted. This eases up finance as it allows the entire sector access to a previously unavailable source of capital. The tax exemption, in particular, makes REITs and InvITs more alluring to invest in, especially given the outlook of the sector.
Final Thoughts
The budget did not directly address some concerns of the real estate sector, like the reintroduction of Input Tax Credit, or other similar GST reforms. However, with 2021 already looking bright, both direct & indirect boosts should help propel the real estate sector to take advantage of.
