Union Budget 2019: Futuristic but Cautious

Nirmala Sitharaman

Finance Minister Nirmala Sitharaman presents her first budget. It has been one hour and given below are the major declaration relating to housing, railway, and infrastructure. Affordable housing, liquidity and infrastructure is the focal point of this budget.

Main Pointers at a glance

  • Additional deduction on loans upto March 31 2020 for buying affordable houses giving RS 7 lakh benefit to home buyers
  • Lower rate of 25% so far only applicable to companies with turnover of ₹250 crore. Propose to increase this limit to companies with annual turnover of ₹400 crore. This will cover 99.3% of companies.
  • Additional deduction of ₹1.5 lakh for interest paid on loans for affordable housing borrowed upto March 31, 2020. This will come up to enhanced interest reduction of upto ₹3.5 lakh on loans for affordable homes.
  • 35 crore LED bulbs have been distributed through Ujala Yojana, leading to a cost-saving of ₹18,341 crore annually. India is going to be free of incandescent bulbs.
  • Special additional duty and road and infrastructure cess  on diesel and petrol to be increased by Re 1/litre.
  • A massive programme for railway station modernisation to be launched.
  • Metro Rail initiatives to be enhanced by encouraging PPPs and faster completion. Dedicated freight corridor is almost complete.
  • Investment by FIIs and FDIs in debt securities in infrastructure debt funds to be allowed.  Minimum public shareholding in listed companies can be increased from 25% to 35%, says the Minister, saying this is being considered.
  • Government will do a restructuring of the national highway programme. In the second phase of Bharat Mala, States will be helped to develop State highways.
  • The Minister proposes ₹50 lakh crore investment for Railway infrastructure between 2018 and 2030,  and using public-private partnerships unleash faster development, completion of tracks, passenger freight services.
  • Recommendations of high-level committee on retiring old power plants, and addressing the under-utlilisation of power plants will be taken up now. A package for power sector tariffs and reforms will be announced soon.
  • Government will do a restructuring of the national highway programme. In the second phase of Bharat Mala, States will be helped to develop State highways.
  • Stress on zero-budget farming, which is a form of gardening as a self-sustainable practice, with minimum external intervention.

Detailed Analogy

 Additional Deduction of Interest for Affordable Housing

In order to provide a further impetus to affordable housing, the Minister proposed to allow an additional deduction of up to Rs.1,50,000/- for interest paid on loans borrowed up to 31st March, 2020 for purchase of an affordable house valued up to Rs. 45 lakh. Therefore, a person purchasing an affordable house will now get an enhanced interest deduction up to Rs. 3.5 lakh. This will translate into a benefit of around Rs.7 lakh to the middle class home-buyers over their loan period of 15 years.

For realisation of the goal of ‘Housing for All’ and affordable housing, a tax holiday has already been provided on the profits earned by developers of affordable housing. Also, interest paid on housing loans is allowed as a deduction to the extent of Rs. 2 lakh in respect of self-occupied property.


 Railway infra would need an investment of 50 lakh crores between 2018 and 2030; PPP  to be used to unleash faster development and delivery of passenger freight services. Railways to be encouraged to invest more in suburban railways through Special Purpose Vehicles (SPV) structures such as Rapid Regional Transport System (RRTS); more Public-Private Partner (PPP) initiatives to be encouraged in the rail sector.  A massive program of railway station modernization to be launched in 2019

Water Security

Water for the environment underpins a range of activities and outcomes throughout the state. Keeping this in mind water security is given importance in this budget.

Real Estate

A Model Tenancy Law will also be finalized and circulated to the States. It is proposed that several reform measures would be taken up to promote rental housing.

Large public infrastructure can be built on land parcels held by Central Ministries and Central Public Sector Enterprises all across the country. Through innovative instruments such as joint development and concession, public infrastructure and affordable housing will be taken up

It is proposed to permit investments made by FIIs/FPIs in debt securities issued by Infrastructure Debt Fund – Non-Bank Finance Companies (IDF-NBFCs) to be transferred/sold to any domestic investor within the specified lock-in period.

An important determinant of attracting cross-border investments is availability of investible stock to the Foreign Portfolio Investors (FPIs). This issue assumes greater significance in view of the gradual shift, from stock targeted investments, towards passive investment whereby funds track global indices composition of which depends upon available floating stock. Accordingly, FM proposed to increase the statutory limit for FPI investment in a company from 24% to sectoral foreign investment limit with option given to the concerned corporate to limit it to a lower threshold. FPIs will be permitted to subscribe to listed debt securities issued by REITs and InvITs.

New and innovative financial instruments have been launched in the last five years like Infrastructure Investment Trusts (InvITs), Real Estate Investment Trusts (REITs) as well as models like Toll-OperateTransfer (ToT) as part of the brownfield asset modernization strategy for augmenting infrastructure investment. India has had a reasonable success in brownfield asset monetization and several InvITs and one REIT transactions have already been completed. Additionally, NHAI carried out one ToT transaction as well. The cumulative resources garnered through these instruments and model exceed 24,000 crore.

Expert Analogy from Industry Veterans

Opinion 1- Affordable housing, liquidity and infrastructure remain key focus of the government. Ramesh Nair, CEO & Country Head, JLL India.

His full analysis is given below.

A)    Enhanced focus on affordable housing to achieve ‘Housing for All’ Mission

Union Budget 2019 has been presented on expected lines. With sustained focus on affordable housing, government has emphasised on increasing the demand. In the past, the government has already awarded the infrastructure status to the affordable housing segment, increased the carpet area and re-defined income definitions to boost supply in the market. Government has already extended the 100% tax holiday under section 80-IBA of the Income Tax Act, 1961 to 31 March 2020.

With an objective to help buyers in the affordable and mid-housing segments, an additional exemption of Rs 1.5 lakh on interest paid on housing loan, over and above the existing Rs 2 lakh, has been provided for properties up to Rs 45 lakh. Considering that a majority of homebuyers fall in the lower and mid-income segments, this tax benefit will boost demand substantially. This will significantly benefit first time home buyers who will enjoy the benefits of interest subvention under the CLSS scheme and the announced tax benefits. With effective i nterest coming down, it will increase the eligibility for the mid-income housing segments.

In a bid to improve supply, Budget 2019 has proposed to open up land parcels of government and PSUs to be utilised for affordable housing and public infrastructure.

B)    Rental housing market to get a fresh lease of life

Budget 2019 has proposed to bring in a Model Tenancy Law. This will be finalised and circulated to the states. Archaic rental laws in the country so far have proved disadvantageous for both, tenants and landlords. The new rental act will bring the required institutional framework in the country and make it more organised and fair for landlords and tenants.

C)    Stricter lending governance and disclosure norms

Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs) play a crucial role in supporting the real estate sector. Unification of the regulatory body and to place both NBFCs and HFCs under the aegis of RBI will lead to better regulation of HFCs and improve transparency in the system.

D)    NBFC liquidity issue addressed

Budget has proposed a one-time provision for six month period to offer partial credit guarantee to public sector banks to buy high rated pooled assets worth Rs 1 lakh crore from NBFCs. This will provide the much needed liquidity to the NBFCs. They can thus liquidate their portfolio and meet their liabilities in a timely manner. Additionally, it will induce an atmosphere of confidence.

E)    Easing of local sourcing norms in single brand retail

Relaxation in the existing norm of 30% local sourcing for single brand retail has been one of the key demands from foreign investors keen on putting money in single brand retail in the country. Budget 2019 has proposed to ease this norm. This would make the segment more attractive for foreign players and investors.

F)    REIT in India gets another support

Budget has allowed foreign portfolio investors (FPIs) to subscribe to listed debt papers of REITs and InviTs. This will broaden the investment options for foreign investors and henceforth, spur higher flow of funds. FPI investments in REITs through debt papers will enable REIT players to increase the asset portfolio and make REIT investments more attractive.

G)    Emphasis on transit oriented development (TOD)

Budget has emphasised on the development of TOD zones and their importance on the overall urban development. The TOD provision will lead to growth of commercial and industrial units along the new and existing corridors across the country.

Opinion 2-Government has taken two major initiatives to formalize and control financial institutions in the country, believes Sachin Bhandari, CEO, VTP Realty. 

His analysis is given below.

Recently there has been a crisis in the NBFC sector and the steps taken by the Government will help the NBFCs to raise the money quite easily, because they have been the backbone of growth in India. Including the interior and rural areas. Thus helping increase the GDP of the country as well as the real estate sector on the whole. So one of the big positive steps taken by the Government is to support the NBFCs in infusing more funds into the sector.  Secondly a second major move, which must be lauded, is to bring all housing finance companies under the ambit of the RBI. RBI has been controlling only the banks uptil now while the housing finance companies were being managed by the NHB (National Housing Bank). RBI will bring in more fiscal discipline and we expect all NBFCs to be more structured and tightly regulated guaranteeing a boost to not only the sector but overall growth for the country.  I believe these are the two major announcements made in the budget today that will have a positive impact on the realty sector.

Amongst some of the other initiatives the Finance Minister has announced, much is being proposed to continue their push towards Affordable Housing. Several reforms would be undertaken to promote rental housing which indicates that a modern tenant law will be formulated.  To provide further impetus to affordable housing, additional deduction of 1.5 lakh rupees on interest paid on loans borrowed up to 31 March 2020 for purchase of house up to ₹45 lakh. The government’s consistent efforts towards Housing for All by 2022 is very encouraging for us as a business and also as consumers. To provide further impetus to affordable housing, additional deduction of 1.5 lakh rupees on interest paid on loans borrowed up to 31 March 2020 for purchase of house up to ₹45 lakh. The government’s consistent efforts towards Housing for All by 2022 is very encouraging for us as a business and also as consumers.

Opinion 3-Mr. Nikunj Turakhia, President of Steel Users Federation of India (SUFI) believes that the changes in the GST introduced in Budget 2019 will ease the way business is done in India impacting the growth in the economy in a positive way. Increase in the expenditure for infrastructure to 100lakh crore in the next 5 years will boost consumption of various metals. The government is setting an enhanced target of Rs 1,05,000 crore for disinvestment during FY20 and will continue with disinvestment of PSUs in the non-financial space as well. Introduction of 2% Tds on 1.0cr or more withdrawal of cash from bank will have a good impact in making Indian economy cashless economy.

Opinion 4- A balanced one with more of a long-term vision as a follow-on of the Interim Budget, saysArun Chitnis Head – Media Relations ANAROCK Property Consultants Pvt. Ltd. Analysis.

His full analysis is given below.

Overall, Union Budget 2019-20 is a balanced one with more of a long-term vision as a follow-on of the Interim Budget. It has obviously been formulated to restore confidence in the India growth story as a whole, and more importantly within India Inc.

As far as real estate is concerned, the budget had a few hits and several misses. Infrastructure stayed at the top of the government’s agenda. This is of course significant, since infra development is one of the main propellers for economic growth and real estate benefits both directly and indirectly.

The new FM had an uphill task of balancing priorities in Modi 2.0’s maiden budget. Most sectors – including real estate – stridently sought concessions to kick-start stagnant consumption and investments. Steering the country out of the stranglehold of economic slowdown and creating employment were also high on the priority list.

The Union Budget was on track in terms of encouraging savings and investments and empowering rural India. Its thrust towards the digital economy and start-up evolution will have indirect benefits in the long run.

As expected, affordable housing under the PMAY scheme (also a critical employment generator) got a boost.

Positives for Real Estate:

Affordable housing gets a shot in the arm:

The government announced major tax benefits that will help stimulate demand for affordable housing. Interest deduction up to Rs 3.5 lakh for affordable housing (priced <INR 45 lakh) as against Rs 2 lakh earlier will now be available until March 31, 2020. This can help attract first-time homebuyers. Further, nearly 1.95 crore houses are proposed to be provided to eligible beneficiaries under PMAY-Grameen between FY20 to FY22.

The FM underscored that the completion of houses that previously required 314 days/house in 2015-16 has come down to 114 days since 2017. If so, the target of Housing for All certainly looks a bit more achievable. The government has set for itself a gruelling target under the Housing for All initiative.

Infrastructure development push:

As expected, a major boost has been given to infrastructure development via all forms of physical connectivity including industrial corridors, dedicated freight corridors, railways and airways. The government plans to invest over INR 100 lakh crore in the sector over the next five years. This will significantly benefit real estate and particularly increase demand for logistics and warehousing. However, actual benefit will depend on its on-ground implementation.

Another positive within the sector includes the development of nearly 30,000 km roads using green technology by recycling plastic. This can bring down the cost of road deployment and increase the sustainability quotient of a process which otherwise has serious environmental implications.

Rental housing may soon shed its ‘poor cousin’ status:

The FM called out the old rental laws archaic and stated that the government will soon formalize a modern tenancy policy and share it with all states. Clear-cut incentives to boost rental housing via a sound policy will positively help the government to further strengthen its Housing for All initiative. We await further announcements on this critical policy intervention.

Retail sector benefits:

Easing the registration process for small retailers and further simplifying the local sourcing norms for single-brand retail will benefit the retail sector in the times to come, and help the unorganized retail sector become more competitive.

Boost to Student Housing:

The government’s plan to launch a ‘Study in India’ programme to attract foreign students in higher education – for which it allocated INR 400 crore in FY20 – will inevitably create more demand for student housing. This is one of the best alternative asset class within the residential sector.

  • The government’s plan to develop 17 iconic tourism sites as world-class tourist centres will help boost the flow of domestic and foreign tourists to these destinations. It is a major positive for the hospitality sector.
  • The regulation authority of housing finance companies has now been moved from NHB to RBI. This will help create more transparency, eliminate anomalies and improve overall regulation.

On the Flipside

From the real estate perspective, the budget did not meet many expectations as it failed to address the sector’s most pressing concerns. We may not see consumers and investors return to the market in sufficient numbers – barring in affordable housing. The all-important ‘industry status’ remained elusive,taxes were not sufficiently moderated and land reforms were not mentioned at all.

  • Tax benefits to homebuyers and investors: The deduction limits on principal and interest repayments under Section 80C and 24(b) respectively were last increased in 2014 after a hiatus of a decade. It was widely anticipated that the FM will try and revive consumer sentiments by increasing these tax exemption limits. The fact that these remained untouched is a definite sentiment dampener for many including real estate.
  • Investor sentiment will remain subdued: To revive the ailing real estate sector and ease the liquidity crisis, the government has to revive investor sentiment. However, Budget 2019-20 failed to announce sufficient key initiatives and measures to bring investors back to the real estate market and thereby help pump some badly-needed liquidity into the system.
  • Pre-budget, there were strong indications that the Centre would create a stress-asset fund to get work started on the stuck projects and provide relief to cash-starved developers as well as aggrieved homebuyers. The fact that it did not materialize is a major disappointment
  • Increase in customs duty on various raw materials such as PVC, vinyl floor etc. may put additional pressure on the pricing of residential real estate.
  • ITC benefit in GST left out: Without ITC benefits, builders suffer a major cut in their profit margins. Not only are the consequent losses offset by higher prices to buyers, they also result in a curtailed supply pipeline which does not bode well for amenable pricing going forward

Info sourceindiabudget.gov.in, hindu, TOI, Economic Times, et realty