Union Budget 2016-17

Implications on Indias
Real Estate
Anuj Puri
Chairman & Country Head, JLL India

Meeting Expectations with some Positive Moves

To give him due credit, the Finance Minister has definitely tried to manage expectations by having a balanced budget.
While three of the real estate sectors major expectations i.e. increase in HRA deduction, removal of DDT from
REITs and boost to affordable housing by allowing 100% deduction on profits made by entities constructing them
have been addressed, there was no financial protection offered to home buyers from project delays.
Most first-time home buyers in major metros will be left out of the additional INR 50,000 tax exemption announced
today, as it is applicable only on houses worth up to INR 50 lakh with loans of up to INR 35 lakh. This announcement
will mostly benefit first time home buyers in tier-III and tier-II cities. The infrastructure sector was definitely a major
beneficiary today.
The biggest announcement with implications for the real estate sector in India was removal of Dividend Distribution
Tax (DDT) from Real Estate Investment Trusts (REITs).

REITs could become a reality soon

The Dividend Distribution Tax (DDT) got exempted, clearing a final hurdle on the way of the successful listing of
REITs in India. We expect a few listings to happen in the current year itself, either by financial institutions or
developers. Currently, around 229 mn sq ft of office space can be seen as REIT-compliant. If we assume that even
50% of these get listed, we are looking at a total REIT listing worth USD 18.5 mn sq ft.

Boost to affordable housing developers

100% tax deduction has been announced for developers building houses up to 30 sq m in four metro cities and 60 sq
m in other cities, for projects approved between June 2016 and March 2019 and is completed within three years of
the approval. Minimum Alternate Tax (MAT) will however apply to these undertakings. Service Tax will be exempted
for housing construction of houses less than 60 sq m.

Digitisation of land records

There is a clear emphasis to make land records more transparent and this is an important parameter that contributes
towards the overall transparency in real estate sector in India. The government will revive its national land record
digitisation scheme with a funding of INR 150 crore. This initiative is expected to increase the overall transparency in
real estate and will have a positive impact on the real estate foreign capital inflows.

JLL.
Peninsula Business Park
Level 7, Tower A
Senapati Bapat Marg, Lower Parel
Mumbai 400013
www.joneslanglasalle.co.in

Jones Lang LaSalle 2016 Jones Lang LaSalle IP, Inc. All rights
reserved. All information contained herein is from sources
deemed reliable; however, no representation or warranty is made
to the accuracy thereof.

Road infrastructure and new land opening up

Approximately 16-18 km of road construction per day has been achieved by the middle of the current financial year
and the Budget has adopted measures to significantly step up NHAI capabilities in this regard. Road infrastructure
has great influence on real estate development, particularly with the new land it opens up for development through
highways and feeder routes.

Infrastructure creation
The Budget has outlined revival plans for non-functional airports in partnership with state governments, with a vision
to spend around INR 100-150 crore on each airport to make them functional again. This will be a boost to
infrastructure in many tier-II and tier-III cities and is without a doubt positive for their real estate markets. A select few
projects that are commercially viable with good ridership could pick up pace in the near term.

Release of land
Going by todays Budget announcements, Central PSUs are going to be encouraged to reduce their exposure to
excess land holdings. While availability of land for development is definitely a constraint and the Land Acquisition Bill
is increasingly difficult to implement, an alternative route is to make use of land holdings of central PSUs. We have
seen this been done in the Railway Budget as well.

Retail sector
The revamp of the Model Shops & Establishment Act is a welcome move and could help the retail sector
considerably. Unorganised retail could receive a fillip, as smaller shops will now also be given the option of remaining
open for all seven days of the week, like organised malls. While this will make the high street retail real estate
proposition a bit more attractive, we will have to wait and see the implications from a labour market perspective.

Office occupancy perspective

The Budget made a strong case for promoting start-ups in India with 100% tax rebate on profits announced for them
for three years. In the recent past, we have seen successful start-ups (particularly in the technology and e-Commerce
sectors) becoming big and occupying a commendable share in office space. As more start-ups get encouraged to
commence operations, we expect developers to offer more small mixed-use properties or arrangements for sharing of
office space to cater to this segment.
Importantly, clarity is expected on GST implementation. The House got adjourned today when the Financial Bill came
up but the FM had earlier said the government will strive to get it passed.

JLL.
Peninsula Business Park
Level 7, Tower A
Senapati Bapat Marg, Lower Parel
Mumbai 400013
www.joneslanglasalle.co.in

Jones Lang LaSalle 2016 Jones Lang LaSalle IP, Inc. All rights
reserved. All information contained herein is from sources
deemed reliable; however, no representation or warranty is made
to the accuracy thereof.