The Union Budget 2014-15 was presented in the parliament under economic circumstances that required tax revenues to keep pace with targets. Considering the state of government finances and the current situation – below-normal monsoons, Middle East tension leading oil price volatility, the weakness of the India rupee etc., there was not much room for populism. The Finance Minister took a cautious, yet courageous path with his budget announcement, says Anuj Puri, Chairman & Country Head, JLL India.
Puri adds that construction costs have been rising at the rate of 17 percent over the last three to four years, and the budget has not provided enough measures to bring down these costs. Contrary to expectations, material costs involved in real estate construction will remain high over the near-to-medium term, which is bound to put pressure on developers’ margins.
He feels the infrastructure and manufacturing sectors have been given paramount importance, since these are job creating verticals. Banks will now be encouraged to extend long-term loans for infrastructure projects without any regulatory pre-emptions such as CRR, SLR and priority sector lending norms. This additional enforcement of banks to support the creation of infrastructure will result in faster infrastructure creation and the consequent benefits to the real estate sector.
A total of Rs 37,880 crore has also allocated a towards the NHAI for the construction of highways, and additional Rs 3,000 crore to boost road connectivity in the North-East regions. For the current year, it has targeted the completion of 8,500 kilometres of national highways, which are a known real estate catalyst and will have long-reaching implications on the markets of the cities they connect, opines Puri.
Ahmedabad and Lucknow have been singled out as special beneficiaries with the allocation of Rs 100 crore towards the deployment of Metro rail systems in the two cities. The increased connectivity will raise the scope of real estate development in the respective cities and also have an impact of property valuations over the mid to long term, he states.
He then mentions that as promised in the new government’s manifesto, it has proposed the creation of 100 smart cities across India. The budget has allocated Rs. 7060 crore towards this end, thereby giving a financial sign-off for the concept. It will have positive implications for retail real estate.
The country’s warehousing sector has received a boost with an allocation of Rs 5,000 crore, he points out. It will lead to positive implications for the retail real estate sector on account of a strengthened supply chain, which has been a serious requirement of the sector for a very long time. Apart from this, the budget has not provided any further benefits to the retail sector, which is a disappointment.
In his opinion, overall, the real estate sector’s expectations have not been met completely in the budget. However, given the economic situation prevailing in the country, this is not really surprising as the government needs to balance myriad issues while addressing growth. We are, however, satisfied that the real estate sector is once again headed in the right direction.