How Jaitley Can Make Indian Realty More Attractive To Global Investors
Let's look at all things bright for once.
Amid all the changes that are unfolding in India's real estate sector making stakeholders much jittery, there have been developments that must make us believe all is going to end well in the long term.
While decelerating its growth projection for India for the financial year 2016-17 from 7.6 per cent to 7 per cent, the World Bank forecast that the country would regain momentum in the years to come, and register growth in the range of 7.6 per cent and 7.8 per cent.
In an analysis, Oxford Economics has predicted Gujarat's Surat is going be the world's fastest growing city in the 2016-2030 period. The analysis also shows that several other Indian cities will be registering remarkable growth in the same period.
At a City Momentum Index-2017, Bengaluru, considered India's Silicon Valley, was ranked the most dynamic city in the world.
A Bloomberg report recently said that all things Indian are going to be popular bets among global investors. "Given the possibility of a protectionist turn from the US under Donald Trump this year, the South Asian nation's assets are looking increasingly attractive. Prime Minister Narendra Modi's November decision to withdraw high-denomination bills may see a slowdown, and prompt more interest-rate cuts, which will be good for bonds," says the report.
This testifies investors are going to be high on Indian realty, the short-term impact of all the changes notwithstanding. Now, how can Finance Minister Arun Jaitley while presenting the Union Budget 2017 on February 1 ensure the sector becomes more attractive to this segment?
Perk it up
- Investors are here to gain profits. But, of late, Indian realty has not been giving investors the expected returns. These steps would act as a balm for the short-term pain, caused by measures such as demonetisation. Some tweaking on capital gains tax, for instance, in favour of investors might be a good point to start with.
- Investors have yet to respond to India's Real Estate Investment Trusts (REITs), despite the fact that the government has been tweaking norms for the formation of REITs in the past two years to make it more profitable. The government might have to remove certain bottlenecks before REITs start getting a response. There has been a demand from investors for exempting them from capital gains tax when they exchange securities for other assets. An uncertainty on the policy front is also cited as a reason for REITs not kicking off in India.
- Another measure that would bring cheer not only to investors but also to everyone is the reduction of stamp duty. According to the World Bank, high stamp duty does not help government exchequer; it rather deters people from investing. This means high stamp duty charges do more harm than good. As far as investors are concerned, low stamp duty would make their investment less costly, and send a positive signal among them. Expectations are ripe that Jaitley will announce a measure in this regard.
- India's rental housing has huge potential, and investors have been betting on it big time. A reduction in tax on income from rental could be another way to attract investors.
Clear the uncertainty
Landmark legislations such as the Real Estate (Regulation & Development) Act, 2016, and the Goods and Services Tax regime would do much good to India's real estate sector. But, they have also created an atmosphere of uncertainty in the short term. For instance, developers have yet to know under which slab the sector would be taxed. Recently, it was also announced that the new tax regime would be rolled out from July 1; the earlier timeline was April. The real estate law, too, is in the early stages of being implemented. By announcing measures that would hasten up the process, the finance minister would clear the air and things may come back to normal soon enough.