Commercial Realty to Benefit with Easier Debt Financing Norms

The commercial real estate industry in the country will get a shot in the arm as the Finance Minister Niramala Sitharaman today said that debt financing of REITs will be enabled by way of making amendments in the current financing models.

While presenting the Union Budget 2021, Sitharaman also said that with a view to make compliance easy, it is proposed to make dividend payment to REIT exempt from the Tax Deducted at Source.

Real Estate Investment Trust (REIT) is a legal entity that owns and operates finances generating commercial property assets like office space and malls. REITs pool in capital from numerous small investors. Markets regulator SEBI had issued guidelines for REITs and InvITs back in 2014. It then revised them in 2016 and again in 2017. Embassy Office Parks REIT became the first REIT to list in India.

"It is to be seen what kind of easing government will carry out in InvITs/REITs. Hopefully, there will be changes in the mandated time gap between two institutional placements, and changes will be made with respect to pricing of units by REITs and InvITs for preferential issues. In view of the pandemic, we expect that there will be relaxations for raising of equity capital. Having said that we hope that the relaxations will be good for the market, and people will see more REITs moving in," said Ashish Bhutani, MD, Bhutani Group.

At present, the quantum of dividend income cannot be calculated precisely by the shareholders for payment of advance tax. Sitharaman proposed to provide that 'Advance Tax Liability' on dividend income will arise only post the declaration or payment of dividend.

"The Union Budget 2021-22 was long awaited by the real estate sector, as it could have led to a serious turn of events while the country's economy is still recovering from the brunt of lockdown. However, instead of going the direct way, FM has chosen to initiate stimulus in the related infrastructure sector, which will be bringing job opportunities to the construction workers and laborers who have suffered last year due to complete shutdown. We have seen that commercial properties have seem to interest a large magnitude of people, especially after the global pandemic as they want to have an extra source of income. It is good news that real estate has emerged as one of the safest investment options; with easing of InvITs/REITs, the sector is set to benefit further. Welcome the step of - Affordable housing loan deduction from taxable income extended by another year," said Akshay Taneja, MD, TDI Infratech

The Finance Minister said that similar amendments for debt financing will also be made for InvITs. She also proposed to make dividend payment to InvITs exempt from the Tax Deducted at Source, just like she proposed for REITs.

"The FM has proposed easing of InvITs/REITs, which will help in getting new REITs and attracting fresh investments in the real estate sector. The creation of a development financial institution is another good announcement as this sector has been suffering due to paucity of patient capital. It is heartening to see Governments focus towards "Housing for All" and accordingly the government has made announcements regarding affordable housing such as to extend eligibility of erstwhile tax sop on home loan up to FY22 and offer tax exemption for notified affordable rental housing projects. We too plan on entering the affordable housing sector this year. Lastly the creation of bad assets bank / ARC along with recapitalisation of banks are both much needed moves which will help sort out the banking woes to a great extent," said Mr. Uddhav Poddar, MD, Bhumika Group.

Adding on to the views Mohit Goel, CEO, Omaxe Limited said, "We welcome Budget 2021-22 which lays greater emphasis and outlay on the health, manufacturing and infrastructure sector with an aim to create jobs and boost the economy. State Capitals and tier 2/3 cities will benefit immensely from the government's focus on sectors like roads and highways, ports, power, urban infrastructure, railways. Add to it, the affordable housing boost, by extending tax holiday for such projects by one year, the deadline for first time homebuyers to avail additional Rs. 1,50,000 interest deduction on home loan and tax exemption for affordable rental housing, will further boost demand for housing in these cities." Additionally with easing of InvITs/REITs, the sector is set to benefit in multiple ways.

Summing up the impact of budget announcements on real estate sector, Raman Gupta, Director - Branding & Construction, GBP Group said, "The Union Budget was highly awaited by the developer's community.The real estate industry is at the cusp of transition in the country, therefore the long standing demands of the sector such as single window clearance, industry status and input tax credit needed government's attention, though they remain unaddressed by FM. The support extended to the infrastructure sector is expected to bring some indirect benefits to the real estate sector in terms of better connectivity and increase in job opportunities for laborers/construction workers."

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