Budget 2022 aims at long-term growth of real estate sector

Chintan Patel and Pratik Chawla

Even as the economy is recovering from COVID-19-induced financial stress, Budget 2022 seems expansionary in nature, and this promises economic growth and entails strengthening of infrastructure.

For the real estate sector, Budget 2022 provides limited impetus in the short-term other than promotion of affordable housing, granting infrastructure status to data centres, and increased focus towards reviving the hospitality sector. Some key measures such as investment in PM Gati Shakti and urban planning shall lay down the long-term benefits for the growth of the sector.

Housing And Data Centres

In line with the government’s focus on housing, a budgetary allocation of Rs 48,000 crore has been made towards affordable housing with an ambitious target to build 8 million houses for eligible beneficiaries of the PM Awas Yojana (PMAY). Further, the central government will work with state governments for reduction in time required for approvals to promote affordable housing in urban areas. According infrastructure status to data centres will improve the chances of key developers availing cheaper credit.

Extension Of ECLGS

The extension of the Emergency Credit Line Guarantee Scheme (ECLGS) until March 2023 will provide much-needed support to the MSMEs. The guarantee cover is extended to Rs 500,000 crore, and focus is on the hospitality sector. This is a major respite to the hospitality sector which has been reeling under the impact of the pandemic.

 The PM Gati Shakti will boost the infrastructure network, and will aim to seamlessly integrate different modes of transport to improve logistic efficiency, reduce costs, and ensure seamless multi-modal connectivity for movement of people, goods and services. This will not only provide a necessary fillip to real estate activity around the key nodes, but will also help augment industrial and warehousing activity across key clusters.

Connecting Hill Stations

In order to augment tourism and connectivity across hill stations, the National Ropeways Development Programme under the ‘Parvat Mala’ project is proposed to be implemented on a Public Private Partnership (PPP) mode with eight ropeway projects to be constructed in FY2023. The proposed project shall help in reducing travel time and pollution, improve connectivity to key hill stations and help in promoting tourism and tourism-allied industries such as hospitality, restaurants, retail, and wellness segments among a few.

Futuristic Cities

The Budget propose to formulate a high-level committee to provide recommendations on urban sector policies, planning, governance, capacity building, and implementation. It has earmarked Rs 250 crore each for creation of five centres of excellence across India which shall provide certified training in the urban planning domain, which is critical to support the growing urban population, improve livelihood, and promote sustainable living. This shall also assist in fostering real estate development across tier 2 and 3 cities.

Replacing SEZ Act

Parliament passed the SEZ Act in 2005 with the aim of attracting foreign direct investment and creating a competitive and hassle-free environment for companies engaged in exports of goods and services. To promote development of enterprises and hubs, and improve occupancy within the operational special economic zones, the SEZ Act will be replaced with a new legislation. Replacing this Act could reduce the compliance burden, and allow companies operating within the zones to sell their products in the domestic market without additional customs duty.

The SEZ Act has been positively leveraged by services sector, while companies in the manufacturing segment have languished. If the legislation is drafted, an SEZ which is catering to the domestic market, shall behave like a domestic tariff area entity. If the same entity is facing the international market, it will behave like an SEZ unit. It will still be one unit. This legislation would help in reviving the SEZ enclaves, and boost the Make in India initiative.

Bolstering Make in India

Customs duty rates have been calibrated to facilitate domestic manufacturing of wearable devices, shareable devices, and electronic smart metres. Duty concessions have been proposed for parts of mobile phones such as transformers, chargers, camera lens of mobile camera modules, and certain other such items. Additionally, the government has earmarked Rs 195,000 crore towards solar equipment manufacturing. The duty concessions are expected to supplement the electronics manufacturing industry and increase demand for the industrial/SEZ space.

Though the Budget seems rational as it comes at a time when the economy is struggling to come out of the pandemic’s adverse impacts, some of the industry demands could have been addressed. For instance, the real estate industry was further eyeing SOPs such as relaxation in Goods and Services Tax (GST) on under-construction properties, a reduction of GST on key raw materials, a higher interest exemption for homebuyers, reduction in holding period for Real Estate Investment Trusts (REITs) and above all, the long-awaited demand of granting 'infrastructure' status to the sector.

Chintan Patel is Partner and Head – Real Estate, Building and Construction, KPMG India, and Pratik Chawla is Vice-President, M&A Consulting, KPMG India. Views are personal, and do not represent the stand of this publication.