Colliers Analysis | Real Estate Perspective | Union Budget 2013 -14

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Union Budget 2013-14 did not bring any cheer nor disappointment for real estate stakeholders even though expectations for reforms were high during the pre-budget discussions on the Real Estate Regulation Bill/ Land Bills etc. Finally, there wasn't much in terms of reforms for the sector. The industry however was not completely ignored as the Finance Minister did throw in some incentives for the industry. Here is the Colliers International analysis on Budget from real estate perspective.

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Colliers Analysis | Real Estate Perspective | Union Budget 2013 -14

  1. 1. UNION BUDGET 2013 - A SNEAK PREVIEW 1Q 2013 | RESEARCH Impact on Real Estate I Neutral Company Change (%) Honorable Finance Minister P. Chidambaram started his budget speech 2013-14 BSE SENSEX -1.52 with the pretext of slowed global economic growth in 2012. He acknowledged Realty Index -2.72 that the Indian Economy is challenged and mentioned that the Indian economy is constrained because of a high fiscal deficit; its reliance on foreign inflows to Anant Raj Ltd. -2.05 finance the current account deficit; decreased savings and lower investment; a D B Realty Ltd. -3.54 tight monetary policy to contain inflation and strong external headwinds. He DLF Ltd. -0.27 assured that the budget spelled out measures for each of the above mentioned Godrej Properties Ltd. -2.97 issues. The agenda for the Union Budget 2013-14 is set for ‘higher growth HDIL -5.62 leading to inclusive and sustainable development’. The finance minister Hubtown Ltd. 0.23 projected the economy to grow by 4.8% in the next fiscal down from 5.5% in Indiabulls Real Estate -7.51 2012-13. Mahindra Lifespace -2.12 Orbit Corporation Ltd. -4.00 The real estate sector had high hopes this year from the Budget. However, the budget remained silent on most of the major issues such as enactment of the Real Parsvnath Developers -0.69 Estate (Regulation and Development) Bill, revision of Land Bill, granting industry Peninsula Land Ltd. -2.93 status to the sector or infrastructure status to the much ailing affordable housing The Phoenix Mills Ltd. -0.77 sector etc. None the less, there are few small measure has been taken for the real Sobha Developers Ltd. -0.04 estate industry in this budget. Sunteck Realty Ltd. -0.99 Unitech Ltd. -7.95 THE KEY HIGHLIGHTS OF THE BUDGET WHICH MAY IMPACT REAL ESTATESource: www.bseindia.com | Feb 28, 2013 SECTOR ARE AS FOLLOWS: 1% TDS on value of the transfer of immovable properties where the consideration exceeds INR 50 lakh; No TDS for agricultural land transfer; Impact: This move would help to increase the much needed transparency in the real estate transactions. The provision of deducting 1% as TDS will improve the reporting of such transactions and improve the government revenue from capital gain taxes arising from such transactions. Increase in excise duty rate on marble from INR 30 per sq. meter to INR 60 per sq. meter; Impact: Although the increase in excise duty rate on marble will affect the sector by increasing in the overall construction cost. This impact will be minor considering the percentage of cost allocated to this particular construction material and alternates available. The impact will probably be felt more in the luxury residential and hospitality construction sectors. 1 Colliers International www.colliers.com/india
  2. 2. 1Q 2013 | RESEARCH UNION BUDGET 2013 KEY HIGHLIGHTS (CONTINUED) Continuation of service tax exemption for low cost housing and single residential units; Impact: The service tax exemption for low cost housing and single residential units will further encourage affordable housing scenario in the country. Reduction in rate of abatement from 75% to 70% for houses and flats of more than 2,000 sq. ft. or valuing more than INR 1 Crore; Impact: This move will particularly impact the premium residential properties admeasuring at 2,000 sq. ft. or more on carpet area basis or valuing more than INR 1 crore by making them more expensive due to increase in service tax. Increase in provision under Rural Housing Fund to INR 6,000 crore from the existing INR 4,000 crore; Impact: The rural housing fund maintained by National Housing Bank is used to refinance lending institutions for providing loans for rural housing. The increase in fund will help to provide housing finance at competitive rates to targeted groups in rural areas. Allocation of INR 2,000 crore for creation of Urban Housing Fund to National Housing Bank; Impact: With the success of rural housing fund where so far 400,000 families have taken housing loan, the urban housing fund has been created to provide housing finance at competitive rates in urban areas. Allocation of INR 15,184 crore for Indira Awas Yojna; Impact: Under this scheme the financial assistance is provided to some of the weakest sections of society to upgrade or construct a house. Allocation of INR 15,184 crore will help to achieve Government’s vision to replace all temporary houses from Indian villages by 2017. www.colliers.com/india 2
  3. 3. 1Q 2013 | RESEARCHUNION BUDGET 2013 KEY HIGHLIGHTS (CONTINUED) Allocation of INR 5,000 crore to NABARD to finance construction of warehouses, godowns, silos and cold storage units designed to store agriculture produce; Impact: This fund will enable finance for construction of new supply chain facilities at competitive rates for both public and private sector and boost the investment in retail and industrial sector. Increase in the exemption limit of home loan interest payable under section 24 (b) from 1.5 Lakh to 2.5 Lakh; Impact: This increase will promote home ownership in turn give boost to the affordable housing sector and other related industries like steel, cement, brick, wood, glass. However, this incentive is made available only for those taking their first home loan; upto a limit of INR 25 lakh. Provision is made to claim this exemption in the second year in case the limit is not exhausted in the first year itself. Enhancement of the exemption limit for the general category of individual taxpayers from INR 200,000 to INR 220,000; tax credit of INR 2,000 to individual tax payer having total income up to INR 5 lakh: 10% surcharge on income above INR 1 crore; Impact: Increase in disposable income in the hand of common man which will in turn increase the spending power and boost domestic investments. However, at the same time the surcharge on the individuals, HUFs, Firms and entities having income above INR 1 crore will augment government revenues and help the government. in fiscal consolidation. Conclusion: From real estate perspective the budget seems to be salient; the realty Index and most of the listed real estate companies reacted negatively after the budget announcement. The budget stated that during the 12th five year plan, infrastructure investment will go up to INR 55 lakh crore out of which 47% is expected to come from private sector. The Government has allocated INR 21,700 crore to PMGSY (Pradhan Mantri Gram Sadak Yojana), INR 14,873 crore for JNNURM (The Jawaharlal Nehru National Urban Renewal Mission)3 Colliers Internationalwww.colliers.com/india www.colliers.com/india
  4. 4. 1Q 2013 | RESEARCH and INR 20,000 crore for Rural Infrastructure Development Fund. Government has also encouraged the investment in the infrastructure via raising funds from Infrastructure Debt Funds (IDF), India Infrastructure Finance Corporation Ltd (IIFCL) in partnership with the Asian Development Bank and issuing the tax free infrastructure bonds to a limit of INR 50,000 crore. Further, the budget assured improvement in communication regarding taxation and regulatory policy to boost overall confidence of investor in doing business in India. All these measures are thus expected to enhance capital inflow and indirectly give impetus to the real estate industry. Industry Expectations from Budget 2013 -14 Wish-list Results Industry status to Real Estate Sector Infrastructure status’ to Affordable Housing, Integrated Townships and Group Housing Projects Enactment of the Real Estate (Regualtion and Development) Bill Developer / Investors Approval for The Land Acquisition, Rehabitilation and Resettlement Bill Single window clearance for new projects Extension of tax exemption under section 80 IA (4) for industrial parks Relaxation in the deadlines proposed under revised DTC for Special Economic Zones Extension of the external commercial borrowing (ECB) scheme to the entire Indian Real Estate Sector MAT reduction to 5% for units located in Special Economic Zones (SEZ) Incentives for low cost housing technoligies and raw material by reducing import duty, excise duty and sales tax Provision of additional FSI for public parking and utilities development Additional FSI for developing smaller affrodable houses (300-500 sq ft) Wish-list Reinstatement of the tax holiday benefits under Section 80IB– (10) for Affordable Housing Projects Increase in the exemption limit of home loan interest payable under section 24 (b) from 1.5 Lakh to 2.5 Lakh Provision of additional FSI for public parking and utilities development Increase in limit of interest subsidy upto INR 5 lakh from the existing INR 1 lakh Individuals Exclusion of principal repayments on home loans from benefits under section 80 C and inclusion of separate tax exemption entity Continuation of service tax for low cost housing and single residential unit. Inclusion of Housing Finance Companies (HFCs) deposits for tax exemption u/s 80C of Income Tax Act Increasing the deduction u/s 24(a) of the IT Act for repairs, maintenance, etc. from the current 30-50% Removal of service tax on Under Construction Property Extension of the existing scheme of interest subvention of 1% on housing loans upto INR 15 Lakh where cost of the house does not exceed INR 25 Lakhs for another yearwww.colliers.com/india 4
  5. 5. 1Q 2013 I RESEARCHColliers International (India) provides property services to property Investors and Occupiers. Wedeliver customised service solutions utilising local and global knowledge in partnership with ourclients via our property Investment and Occupier service lines. These service lines include - OfficeServices, Facility Management, Project Management, Residential Services, Investment Services United States: 147 Canada: 37and Valuation & Advisory Services. Latin America: 19www.colliers.com/india Asia P EMEA: 118For research related queries please contact: $1.8 billion in annual revenueSurabhi Arora MRICS 2.55 billion square feet under managementAssociate Director, Research Over 12,300 + professionalssurabhi.arora@colliers.comRecent Reports :GLOBAL RETAIL MID-YEAR 2012 | RETAIL INDIA OFFICE INDIA RESIDENTIAL APAC OFFICE GLOBAL RETAIL MID-YEAR 2012 | RETAIL INDIA BUDGET 2012-13 Q1 2012 | RESEARCH RESEARCH TEAM GLOBAL GLOBAL A SNEAK PREVIEW HIGHLIGHTS HIGHLIGHTS Amit Oberoi MRICS UNION BUDGET 2012 -13 Record Rents for Top Retail Corridors; Global Record Rents for Top Retail Corridors; Global Slowdown Impacts Momentum Elsewhere Slowdown Impacts Momentum Elsewhere Budget Highlights | Real Estate MARKET REACTION TO BUDGET ANN T. NATUNEWICZ Manager | Retail Research | USA ANN T. NATUNEWICZ Manager | Retail Research | USA Company Change (%) Finance Minister Pranab Mukherjee started his budget speech 2012-13 in the BSE SENSEX -1.19 Colliers’ 2012 Global Retail Streets survey found that of 129 locations tracked, 51 posted higher year Colliers’ 2012 Global Retail Streets survey found that of 129 locations tracked, 51 posted higher year Realty Index -1.26 TOP 10 GLOBAL RETAIL STREETS* TOP 10 GLOBAL RETAIL STREETS* Anant Raj Inds -6.04 National Director, Valuation & Advisory; Research (USD PER SQUARE FOOT PER YEAR) Retailers entering new markets—both developed and developing—continue to hedge risk by targeting (USD PER SQUARE FOOT PER YEAR) Retailers entering new markets—both developed and developing—continue to hedge risk by targeting mentioned that due to adverse global economic sentiments there has been a the same one or two premier locations, generating heated competition and outsized rental rate growth D B Realty -2.02 slowdown in the Indian Economy but the fact is India still remains among the ANNUAL the same one or two premier locations, generating heated competition and outsized rental rate growth ANNUAL DLF 0.15 RENT CHANGE in a handful of space-constrained corridors. RENT CHANGE in a handful of space-constrained corridors. front runners in the economic growth in any cross country comparison. The STREET/PRECINCT (USD)** (%) STREET/PRECINCT (USD)** (%) Godrej Properties -2.82 Companies with the most ambitious long-term expansion plans remain focused on emerging markets Companies with the most ambitious long-term expansion plans remain focused on emerging markets budget aims at faster, sustainable and more inclusive growth across sectors New York – Fifth Avenue ||,||| ||.| New York – Fifth Avenue , . HDIL -5.21 with rapidly growing middle-class populations, but recently institutional capital has pulled back with rapidly growing middle-class populations, but recently institutional capital has pulled back Hong Kong – Queens ||,||| ||.| somewhat to favor core markets and investments. Hong Kong – Queens , . Hubtown Ltd. -4.13 Road Central, Central (tie) somewhat to favor core markets and investments. rapid revival of high growth in private investment, removal of supply bottlenecks, Road Central, Central (tie) Indiabulls Real Estate -1.95 addressing malnutrition in 200 high burden districts and expedite improvement Hong Kong – ||,||| ||.| Hong Kong – , . Canton Road (tie) as Cairo and Athens), high streets with strong fundamentals remained remarkably resilient, suggest- Canton Road (tie) as Cairo and Athens), high streets with strong fundamentals remained remarkably resilient, suggest- Mahindra Lifespaces -0.72 in delivery system, governance and transparency. London – Old Bond St.*** ||,||| ||.| ing, at least for now, some separation between macroeconomic issues and underlying real ing, at least for now, some separation between macroeconomic issues and underlying real Orbit Corp. -3.37 London – Old Bond St.*** , . estate fundamentals. Email: Amit.oberoi@colliers.com Paris – Avenue des*** Paris – Avenue des*** estate fundamentals. Parsvnath Developers -4.04 From a real estate perspective, the budget remained silent on most of the major Champs-Élysées issues including status of STPIs (Software Technology Parks of India), Real Champs-Élysées Peninsula Land -3.18 Hong Kong - ||,||| ||.| has already begun to impact retailers’ revenues and could hinder landlords’ near-term ability to Causeway Bay Hong Kong - , . has already begun to impact retailers’ revenues and could hinder landlords’ near-term ability to Phoenix Mills -2.65 Causeway Bay arrive at a political consensus on the issue of allowing 51% Foreign Direct New York – |||| ||.| Sobha Developers 3.04 Madison Avenue New York – . Investment (FDI) in multi-brand retail. Madison Avenue Sunteck Realty -1.13 This spring proved to be a tricky time to conduct global benchmarking, as market sentiment has THE KEY HIGHLIGHTS OF THE BUDGET WHICH MAY IMPACT REAL ESTATE This spring proved to be a tricky time to conduct global benchmarking, as market sentiment has Unitech -1.68 deteriorated markedly since April. During the past year, virtually every entity making a forecast— Milan – |||| (|.|) including Colliers in our 2012 U.S. Retail Outlook Milan – (.) deteriorated markedly since April. During the past year, virtually every entity making a forecast— Source: www.bseindia.com | Mar 16, 2012 SECTOR ARE AS FOLLOWS: Via Monte Napoleone including Colliers in our 2012 U.S. Retail Outlook Sydney – Pitt Street Mall Source: Colliers International * selected cities |||| (||.|) More than two years post-recession, though, results from our annual survey of High Street rents OFFICE Residential Property Via Monte Napoleone Sydney – Pitt Street Mall Source: Colliers International ( .) projects. ** exchange rate as of March 31, 2012 illustrate that the world’s priciest retail corridors continue to attract the most sought-after tenants at lofty * selected cities More than two years post-recession, though, results from our annual survey of High Street rents *** Zone A rents ** exchange rate as of March 31, 2012 illustrate that the world’s priciest retail corridors continue to attract the most sought-after tenants at lofty external commercial borrowing (ECB) norms as interest rate charged is lower in rental rates. Eight of Colliers’ top ten Global Retail Streets in 2011 made the list again this year. The big PROPERTY MARKET OVERVIEW *** Zone A rents rental rates. Eight of Colliers’ top ten Global Retail Streets in 2011 made the list again this year. The big case of external borrowings in comparison to rates charged by domestic Market Overview story, however, lies with the explosive year over year rental growth achieved in a handful of markets. Six story, however, lies with the explosive year over year rental growth achieved in a handful of markets. Six institutions. REGIONAL RETAIL RESEARCH CONTACTS AMERICAS > Ann T. Natunewicz 20%. At a regional level, streets in areas that entered 2007-08 better-positioned economically—Australia, ASIA PACIFIC REGIONAL RETAIL RESEARCH CONTACTS AMERICAS 20%. At a regional level, streets in areas that entered 2007-08 better-positioned economically—Australia, - Increase in provision under Rural Housing Fund to INR 4,000 crore from the INDIA INDIA > Ann T. Natunewicz existing INR 3,000 crore. OFFICE MARKET OVERVIEW Ann.Natunewicz@colliers.com slower to emerge from the recession. We will be watching these areas closely. Even as they represent Ann.Natunewicz@colliers.com Surabhi Arora MRICS EUROPE/MIDDLE EAST/AFRICA slower to emerge from the recession. We will be watching these areas closely. Even as they represent groups in rural areas at competitive rates. > Zuzanna Baranowska some of the most attractive destinations for expansion-minded companies and yield-seeking investor EUROPE/MIDDLE EAST/AFRICA they too are vulnerable to softening consumer demand and, for those with reliable data, encroachment of > Zuzanna Baranowska some of the most attractive destinations for expansion-minded companies and yield-seeking investor Zuzanna.Baranowska@colliers.com QUARTERLY UPDATE | JANUARY | 2013 e-commerce. QUARTERLY UPDATE | NOVEMBER | 2012 Zuzanna.Baranowska@colliers.com they too are vulnerable to softening consumer demand and, for those with reliable data, encroachment of - Extension of the existing scheme of interest subvention of 1% on housing ASIA e-commerce. > Simon Lo ASIA loans up to INR 15 lakh where the cost of the house does not exceed INR 25 Simon.Lo@colliers.com 3Q 2012 > Simon Lo survey, conducted in April 2012. The second incorporates content from Colliers’ brokerage and research Simon.Lo@colliers.com lakh for another year. AUSTRALIA/NEW ZEALAND survey, conducted in April 2012. The second incorporates content from Colliers’ brokerage and research > Nora Farren teams worldwide who contributed market operational metrics, nuanced commentary on retail conditions, AUSTRALIA/NEW ZEALAND by providing cheaper loan to the end users. teams worldwide who contributed market operational metrics, nuanced commentary on retail conditions, Nora.Farren@colliers.com and forward-looking opinions on what the next year will hold for consumers, landlords, and investors. > Nora Farren Nora.Farren@colliers.com and forward-looking opinions on what the next year will hold for consumers, landlords, and investors. Accelerating success. Accelerating success. P. 1 | COLLIERS INTERNATIONAL Accelerating success. www.colliers.com www.colliers.com www.colliers.com/india Associate Director, Research Email: Surabhi.arora@colliers.com Sachin Sharma Assistant Manager, Research Email: Sachin.sharma@colliers.com Heliana Mano Assistant Manager, Research Email: Heliana.mano@colliers.com For general queries and feedback: India.Research@colliers.com Tel: +91 124 456 7580 For service line information contact: Joe Verghese George McKay Amit Oberoi Poonam Mahtani Managing Director South Asia Director National Director National Director India Office & Integrated Services Valuation & Advisory Services Residential Services joe.verghese@colliers.com george.mckay@colliers.com amit.oberoi@colliers.com poonam.mahtani@colliers.com Vikas Kalia Saacketh Chawla Rajesh Shetty Suresh Castellino National Director National Director National Director National Director Office Services Project Management Facilities Management Investment Services vikas.kalia@colliers.com saacketh.chawla@colliers.com rajesh.shetty@colliers.com suresh.castellino@colliers.com This document has been prepared by Colliers International for general information only. Colliers International does not guarantee warrant or represent that the information contained in this document is correct. Any interested party should undertake their own enquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damage arising directly or indirectly there-from. @ Copyright 2013-2014 All Rights Reserved. This book is printed on 100% Recyclable paper Accelerating success.

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