Report Card: What Has Modi Government Done For Real Estate In India?

The Narendra Modi government has completed a year in office on May 26, 2015. Earlier, the National Democratic Alliance (NDA) government had announced that real estate sector will undergo deep reforms and that the government will allocate Rs. 7,060 crore for developing 100 smart cities across the country. The NDA government had also announced their scheme to provide homes for all by 2022 in their first Budget in June 2014. The NDA government had made amendments to the land acquisition Bill and the real estate regulatory Bill, though they are yet to be passed by Parliament. Many believe the government has not delivered.

Let us look into the major policy changes the Narendra Modi government tried to introduce in real estate in India in the past one year.

• In the NDA government's first Budget, Finance Minister Arun Jaitley's had announced that Real Estate Investment Trusts (REITs)  and infrastructure trusts will enjoy tax cuts and that the proposed REITs would have tax efficient 'pass-through' status to avoid double taxation on both investors and fund managers. In August 2014, the Securities and Exchange Board of India (SEBI) approved the formation of REITs. Many real estate players found the budget 2015 disappointing. In the union budget 2015, Arun Jaitley exempted REITs from long-term capital gains tax, though there is still a short-term capital gains tax of 15%. Recently, the Finance Minister exempted REITs from paying minimum alternate tax (MAT) as well. The government said that rental income would be taxed only in the hands of the unit holder, and not in the hands of REITs.  In May 2015, the Union Cabinet approved a proposal to allow foreign investment in real estate in India. This would allow foreign investors to invest in REITs investing in rent-yielding office and retail space. It is expected that India would see its first REIT this year itself. DLF is keen on floating India's first REIT. If REITs are formed, because of professional management and low ticket size, small investors and global investors would invest more in real estate in India.
   
• In October 2014, the Union Cabinet approved the proposal to liberalize the FDI norms in the construction sector. The Union Cabinet decided to reduce the built-up area requirement for FDI in construction projects from 50,000 sq.ft. to 20,000 sq.ft. The government also lowered the minimum capital requirement from $10 million to $5 million. In May 2015, the Union Cabinet approved certain amendments stipulating that investments by NRIs under Schedule 4 of FEMA regulations will be treated like domestic investments. Investments of NRIs, OCIs or PIOs in property in India would not be subjected to any of the restrictions in foreign investment now. As the norms on built-up area and capital requirement were among the major constraints the government imposed on foreign investors, this move would attract more equity capital for smaller projects with smaller built-up area requirements. When foreign investors with low capital invest in smaller cities across the country,