What to and what not to expect from Budget 2013

IndiaProperty.com

Come February and one is flooded with talks and noises concerning the upcoming budget. The exhaustive panel discussions across media, all painting either rosy or bleak scenarios that the country could face, only adds to the confusion in the minds of the common man. Sadly for him what he gets as budget updates is a list of sector specific populist wish lists - which most of the times are irrelevant for him. What we have tried to do in this report is try and provide a concise précis of what this budget could bring to the real estate sector - both for the end user as well as the developer. Let us start with the oft repeated introduction that almost all the reports start with - the subdued global outlook, the depreciating rupee, talks about "paused" economic reforms. The question that immediately pops up in almost all our minds is - what has that got to do with me having to bear inflated prices of properties? Let us try and put it in context within the limitations of a "concise précis". The industries and sectors that one should watch out for are Steel, Coal, Power, and Chemicals. Along with the obvious Land, Cement and Manpower cost fluctuations what also affects the prices are seemingly unrelated sectors like the ones listed above. Why because the real estate sector is one of the least insulated sectors and hence falls prey to the vagaries of global economic scenarios affecting either of these sectors. Out of all the above Coal is the most important as it is the primary raw material used for Power, Cement as well as Steel Production. Power because globally 42 percent of power is produced using Coal. Coal is the core material required for steel as well as cement production. Even Fly Ash, which has become one of the fastest growing raw material segments in the Real Estate sector, is a by-product of Coal Combustion. Funny how suddenly the budgetary discussions on these sectors become important for all of us looking at owning a house. With Australia the second largest producer of Coking Coal and the largest exporter to India, it will be obvious now why any budgetary discussions involving unrelated scenarios like say, import concessions, become relevant for the masses. Now about the impeding budget session, it is a known fact that in India populist budget sessions have always been used as a tool by governments to kick start their election strategies. This budget session is expected to be no different. With elections round the corner and the draining popularity of the current government, it is highly likely that populist reforms could figure prominently.
The Realty Sector can expect buyer friendly reforms to boost the sagging buyer sentiment. What we expect to see is fiscal pressures allowing for a gradual reduction in home loan rates over the year. Also, an increase in tax exemption limit on the interest paid on home loans from current INR 1.5 lakhs is one of the major expectations from this budget. For the construction industry, in light of its larger inter-dependencies on various sectors and with the need to move away from a subsidy driven culture, their demand for subsidy on construction materials for low and mid segment projects is unlikely to materialize. The sector getting infrastructure status with tax exemptions and other incentives for the developers and the investors is definitely not happening this year. Instead, trying new mediums for promoting affordable and mid segment housing projects in the country won't be a bad idea. Broad frame work for banks to encourage home loans at higher loan to value ratio for low and mid segment properties would be a positive step especially for the first home buyers. A regulatory body in real estate becomes critical here to boost confidence of both banks and the customers. Increasing the limit for priority sector lending for residential projects from INR 25 Lakhs is important for properties in tier 1 cities. Similarly it makes sense to decrease the limit in tier 2 and tier 3 cities. Also, making customers aware of such lending procedures along with governments mandate for banks to give such loans is equally critical. The probability of the real estate regulation bill being taken up in the current budget session is very bleak especially with opposition voicing the current political scenario. Need of a regulatory body and transparency in real estate sector are vital for buyer's interest. But there is lot of work that needs to be done before the Indian realty sector gets stream lined and regularized. The effort this year would definitely be towards improving the state of the economy and reducing inflation level. Along with being a populist budget, for long run, it would inculcate reforms to reclaim its global image as a lucrative market for investment.  To conclude, the Union Budget 2013 would undoubtedly try and strike a balance between regaining the trust of the masses as well as improving global investor sentiments.