Budget 2015: Tax sops may help REITs attract $1 billion funds in 2015

Real Estate Investment Trusts (REITs) could attract $1 billion worth funds this calendar year following tax benefits announced in the Union Budget, according to property consultant JLL India.

Finance Minister Arun Jaitley yesterday rationalised capital gain tax regime for the sponsors of newly-created business structure REITs.

Further, the Budget also proposed that the rental income arising from real estate assets directly held by the REIT would be allowed to pass through and to be taxed in the hands of the unit holders of the REIT.

“It’s a great decision. REITs will become a reality now,” JLL India Chairman and Country Head Anuj Puri told PTI.

“We expect one or two REITs to be launched and get listed this calendar year worth about one billion dollar,” he added.

He said that foreign and domestic institutions would invest in REITs initially, before retail investors get excited for this newly created product.

In September 2014, market regulator SEBI had notified norms for listing of REITs that would help attract more funds in a transparent manner into the real estate sector.

REITs, which can be listed on stock exchanges, would help channelise both domestic and overseas investments into real estate projects in the country.

India’s largest realty firm DLF has recently announced plans to launch two REITs in the next fiscal to monetise its office assets. Others developers like Parsvnath and Bangalore-based Embassy Office Parks are also looking at this option.

Although partial pass through was given in the last year’s budget presented in July, real estate developers and property consultants have been demanding further tax clarity in REITs to ensure the launch of this trust for commercial assets.

“A step was taken in the last Budget to encourage Real Estate Investment Trusts (REITs) and Infrastructure Investments Trusts (INViTs) by providing partial pass through to them,” Jaitley had said in his budget speech yesterday.

Stating that these collective investment vehicles have an important role to revive construction activity, the Finance Minister had said that a large quantum of funds is locked up in various completed projects which need to be released to facilitate new infrastructure projects to take off.

“I therefore propose to rationalise the capital gains regime for the sponsors exiting at the time of listing of the units of REITs and INViTs, subject to payment of Securities Transaction Tax (STT). The rental income of REITs from their own assets will have pass through facility,” Jaitley said.

REITs, a new investment avenue in India on the lines of one in developed markets like the US, UK, Japan, Hong Kong and Singapore, can be listed and trading would be allowed in units of REITs like any other security on stock exchanges.

The tax incentives on would give much needed relief to the real estate sector, which is facing a huge slowdown in demand from last few years that had led to liquidity crunch and delay in completion of existing projects.

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Economic Survey 2015 Highlights

Highlights of Economic Survey 2015

INFLATION, GROWTH

* Evidence shows India recovering, but not yet surging
* Upside risk to inflation from monsoon, crude price
* Inflation showed declining trend during April-December
* Inflation not seen up significantly from current level
* Monetary framework to show commitment to low inflation
* Inflation likely to remain in 5.0-5.5% range
* Jan Dhan plan, Aadhaar to help target subsidies
* Outlook for macro economy generally optimistic
* FY15 price subsidy pegged at 4.24% of GDP
* GDP growth points to industrial recovery
* GST, direct benefit transfer to be game changers
* Recommend retail FDI reform to better farm supply chain
* India must adhere to medium term fiscal gap target of 3%
* GST, direct benefit transfers to be game changers
* Labour, capital, land market distortions limit economic growth
* FY15 GDP growth largely driven by domestic demand
* Fall in crude prices has compressed import bill
* Budget aim of gross tax revenue growth over estimated
* Economy appears to have gone past slowdown
* Double digit economic growth trajectory now a possibility
* Growth to get boost from likely monetary policy easing
* Muted export growth source of concern
* Private investment must be engine of long-term growth
* India in a sweet spot for big bang reforms now
* Subsidy doesn’t seem best weapon to fight poverty
* May have to cut some spending FY15 to meet fiscal gap aim
* Need to cut expenditure if revenue not picking up
* Macro-economic fundamentals have dramatically improved
* Falling inflation likely to persist going forward

FISCAL HEALTH

* Govt remains committed to fiscal consolidation
* Need medium to long-term fiscal policy framework
* Govt borrow should fund invest, not for current spend
* Fiscal consolidation quality key to make it sustainable
* Urge govt to aim to bring dn fiscal gap to 3.0% of GDP
* Higher tax share to states won’t impact fiscal discipline
* Must start expenditure control process to cut fiscal gap
* India forex reserves 2nd largest among economies with CAD

INDUSTRY, INFRASTRUCTURE

* Divest mop-up so far Rs 240 billion this FY
* Coal price reform must factor in impact on power price
* Banking hobbled by policy that impedes competition
* Potential for further gains from coal pricing reforms
* Public invest in railways to be key to growth revival
* High rail freight rates hinder industry competitiveness
* Private investment must remain primary engine of longrun growth
* Railway freight rates among the highest in the world

REFORMS

* Scope for big-bang reforms now
* Link post office with Aadhaar-based benefit transfers
* Potential for large gains from coal pricing reforms

AGRICULTURE

* Need national common market for farm goods
* Need law amendment for trading in some agri commodities
* Market distortion key problem in farm growth
* FCI rejig panel report ideas useful for food policy
* Rs 107.82 billion food subsidy given as of January 9, up 20%
* Agricultural strategy must focus on raising yield, productivity
* Food grain output 2014-15 seen 257.07 million tonnes
* All states urged to drop fruits, vegetables from APMC
* Structural shifts in inflationary process underway
* Favour constitutional clause for common farm goods market
* Asked states for policy help to farm markets in private sector

FINANCIAL SECTOR, MARKETS

* Must remove market access barriers to boost services sector
* Must boost capital market, bond financing going forward
* Capital, labour, land market distortions hurting manufacturing
* SLR need, priority lending creating fincl repression
* Commercial banks saw increase in gross NPAs
* Foreign portfolio flows have stabilised the rupee
* Trade performance signals good time to scrap gold curbs
* Must create extra fiscal space to ensure economic stability
* Undertaken major reform steps for banks, insurance
* India ranks well above the mean for BBB invest grade
* See some stress on asset quality of commercial banks
* Rising non-oil, non-gold imports source of concern
* Liquidity conditions remained broadly balanced
* Low inflation makes space for easing monetary condition
* Ensure borrow over the cycle only for capital formation
* Steps taken by RBI played key role in liquidity management
* Need to conclude monetary policy framework agreement
* Oil prices expected to stay benign in coming months

SUBSIDY

* Also need to rationalise subsidies to free resources
* Need to target beneficiaries better to free resources
* Ending, phasing out subsidy not feasible, nor desirable
* Subsidy on power can only benefit relatively rich
* Current study shows rich benefiting more from subsidy
* Price subsidy often regressive
* Subsidy reform to rationalise expenditure
* Subsidies via direct benefit transfers laudable goal
* Rationalisation of food subsidies needs more effort

INVESTMENT

* India ranks among most attractive invest destinations
* Invest activity seems grounded on stronger footing
* PPP model should be revitalised
* Favour greater public invest in railways
* Investment stuck in stalled projects at about 7% of GDP
* Public invest can revive growth engine in short run
* PSUs, especially railways, must lead public investment
* Expenditure switch from consumption to invest to be key

FY15 ESTIMATES

* FY15 weak import largely on sharp fall in crude prices
* FY15 saw hardly any external support to growth
* FY15 growth largely domestic demand driven
* FY15 fiscal deficit of 4.1% of GDP will be met
* FY15 CAD estimated at 1.3% of GDP
* States showed fall in share of mfg in their GDP FY15
* April-December major subsidies up 12.5% on year
* Services sector clocked double-digit growth in FY15
* Equity markets continued to do well in FY15
* FY15 price subsidy pegged at 4.24% of GDP

FY16 OUTLOOK

* 8.5% GDP growth in FY16 in realm of possibility
* 8% economic growth on assumption of favourable monsoon
* FY16 econ growth seen 8.1-8.5%
* External sector outlook most favourable since 2008
* Liquidity conditions seen comfortable in FY16
* Economy to over perform on inflation, make way for rate cut
* FY16 GDP deflator seen 2.8-3.0%
* Outlook for domestic macro economic parameters optimistic
* CAD seen less than 1.0% of GDP in FY16
* Outlook favourable for CAD, its financing
* Inflation to be 0.5-1.0% lower than RBI’s target
* FY16 CPI inflation to be in 5.0-5.5% range

MISCELLANEOUS

* Enhanced revenue generation remains govt priority
* Must scrap some norm to realise potential of services sector
* Stalling of projects seems to have plateaued
* Enhanced revenue generation is a priority going forward
* Skill development, employment major challenges
* Hyper-growth in tech start-ups, service sector
* Can balance higher public invest with fiscal discipline
* Rural penetration of IT services to drive ‘Make in India’
* India is at threshold of an urban flare-up
* Will soon scale up renewable energy capacity to 170 GW
* Insurance penetration up to 3.9% 2013 from 2.3% in 2000
* Portfolio flows pressurising long-term interest rates

 

Source – Zee Media

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What real estate buyers should expect from Budget 2015?

Real estate stakeholders in every Indian city are looking forward to the upcoming financial Budget 2015 to see whether it will provide any relief to the sector. Developers have their own expectations, because positive announcements for real estate buyers made during the budget will help increase the market sentiment, and therefore sales. The general hope is that the Union Budget this year will provide cheer to intending home buyers who have been deterred for various reasons.

Make home loans affordable

The Union Budget 2015-16 should make the rate of interest specific to home loans more reasonable. Currently, banks are offering interest rates ranging between 10.15-10.40%, and this is far too high. Paying so much interest has serious implications on the family budgets of most middle-class wage earners. It is not surprising that many of them currently shy away from home loans. The budget should bring the interest rate on home loans down to between 7.5%-8.0%. The new government has clearly stated that it wants to make Housing For All Indians a reality by 2022. It is impossible to achieving this goal if home loans do not become affordable to all, as well.

Additionally, the home loan interest amount exemption under Income Tax benefit should be increased from the existing limit of Rs 1.5 lakh to Rs 3 lakh. Further, this exemption should be made applicable for more than single property purchases. This is not an unreasonable expectation. In the current times and in many cases, a single home is not enough to accommodate all family members. The finance ministry should take due note of this fact and accordingly provide relief for both first home and second home buyers.

Eliminate multiple taxation on property purchase

The budget should also do away with the multiple taxes involved in the purchase of residential property. As of now, home purchasers are required to pay service tax and value-added tax (VAT) on top of stamp duty and registration charges. Goods and Service Tax (GST) should be introduced in the place of these taxes. Also, the real estate industry expects the Budget to finally make the Real Estate Regulatory bill a reality this year, so that the industry has the benefit of an apex body via which all concerns can be addressed transparently and efficiently.

Reduce cost of property registration

Another expectation from the Union Budget is a reduction in the cost of property registration. The recent hike in ready reckoner rates in Maharashtra has been a sentiment setback for the real estate sector. Stamp duty and registration costs are as high as 6% in most cases, and this needs to be reduced by a few base points to aid consumers. Alternatively, a slab-based approach should be introduced. Stamp duty falls under state government purview, but the Center can nevertheless issue a directive to reduce stamp duty costs.

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