Commercial real estate has been a prospering investment class in India. Along with policy reforms, institutional investments, foreign partnerships, and growth within the IT-ITeS (information technology-information technology-enabled services sector), demand for top-class office land has become very attractive so much that top global investors are betting big even while there have been concerns, thanks to work from home environment. According to India Brand Equity Foundation, the sector has a lot of potentials as it will reach a market size of $1 trillion by 2030 and will add a whopping 13% to the country’s growing economy and GDP by 2025. The real estate industry covers a wide scope and contributes up to 55 percent to the steel industry, 15 percent to the paint industry, and 30 percent to the glass industry.
Which sector is that the second biggest creator of jobs in India and shortly expected to contribute a whopping 1/10th of the national GDP?
If you guessed real estate, then you’re right! This year, due to the negative economic impact of the coronavirus pandemic, many columnists, economists, journalists, and analysts have been asking the finance minister to spend more and more. It was declared in the budget that the focal point will be affordable housing and rented house plans. The tax exemption in affordable housing is now drawn out for another year. That is, it will stay in force till 31 March 2022. As per this, there will be a tax exemption of Rs. 1.5 lakh for affordable housing. This step has been taken to spice up the affordable housing segment.
Two considerable incentives given to the real estate sector are Tax benefits for affordable housing and for private investment formats such as REITs and InvITs (Real Estate Investment Trusts and Infrastructure Investment Trusts). The FM proposed to continue for another year — till March 31, 2022 — the tax exemption benefit, as well as the deduction of interest on loans for affordable housing. Another commendable move that will provide aid to migrant workers is a tax exemption for notified Affordable Rental Housing Projects, making rental homes more available for migrants.
Further, in a truly future-forward step, the FM gave a stimulus to REITs and InvITs with the exemptions on TDS (tax deducted at source). The Finance Minister further proposed to let on the entry of foreign portfolio investors into debt financing of REITs and InvITs. This will make REITs and InvITs a more cost-effective investment for the common man, and help bring more private assistance and flow of funds into the real estate and infrastructure sector. The FM also declared a few secondary support measures, such as an injection of funds in infrastructure development, which will advance the overall capital appreciation of proximate property.
It must be observed that even during the pandemic, while the rest of the financial markets was stalled, commercial real estate had bounced back by Q3. Since then, net absorption of commercial property has increased by 63%, while new completions grew by 59% when compared to the previous quarter.
Commercial realty in India is now a fast-growing sector that will boost the economy greatly within the coming years.
Another long-standing hope of the world is that the re-introduction of the Input decrease (ITC) and other GST reforms. The industry’s hope was that there would be a set-off on GST paid on input materials against GST on rent from the finished property: this is a move that might especially help developers who retain assets and believe their leasing or rentals for income, but feel that they’re subjected to dual tax levy on this account.
While the above announcements are welcome and can boost the world, there are some measures that real estate experts hope the government will introduce within the near future. One of the longest-running hopes of the world has been receiving industry status. This would impart three huge benefits: (1) acquiring loans at lower interest rates, (2) attracting equity investment and, (3) enabling developers to refinance debts. Never has this been more crucial than now, when the important estate sector is in dire need of liquidity and relief from pandemic-inflicted setbacks.
In order to incentivize home buyers and real estate developers, it is proposed to increase the safe harbor limit from 10% to 20% for the specified primary sale of residential units. To further extend our efforts towards the unorganized labor force migrant workers particularly, FM proposed to launch a portal that will collect relevant information on gig, building, and construction-workers among others. This will help formulate Health, Housing, Skill, Insurance, Credit, and food schemes for migrant workers.
With time, even the Indian public is showing more interest in investing in commercial land, something that has been made accessible to them through REITs and fractional or shared ownership. The hope is that the advantages provided to REITs also will be extended to fractional ownership, to encourage more people to take a position. Other liquidity-easing measures that developers were looking forward to would have included rational capital supply, access to funds, and a longer repayment cycle.
Commercial property is going to be among India’s strongest economic engines going forward. Any benefit the government extends to the present sector is going to be felt manifold across the economy. While the Budget may be an assortment for the world, one hopes that the government will announce further stimulus measures within the near future. People have started realizing the importance of larger spaces and self-sustained communities.
Both, residential apartments and commercial properties, with a premier club by the pioneered real estate group (Shree Balaji Group) at various locations of Vadodara like Karelibaugh, Atladara, and New VIP Road is offering some never before deals. Considering the present scenario, land proves to be the foremost valuable and reliable sort of investment for anyone who intends to secure and safeguard the longer term of their family.
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