Finance minister Nirmala Sitharaman, in order to lift business sentiment and spur investments, slashed corporate tax rate – to 22% from 30% for domestic companies – and proposed a competitive 15% rate for new investment in manufacturing. In effect, she offered ₹ 1.45 lakh crore fiscal boost, aiming to revive growth. The government’s decision to cut corporate tax will have a ripple effect on all sectors including real estate, improve liquidity of cash-starved developers and boost property demand especially in the commercial segment.

Positive Effect on Real Estate

The move will have an impact on all sectors including real estate as it will encourage foreign institutional investors to invest in the country. In terms of taxation, India will now be at par with many of its Asian countries and hence a major draw for foreign investors who were earlier wary of entering India due to high taxes. The government’s decision to reduce corporate tax base rate to 22% is expected to provide real estate developers a buffer to offer further incentives and cut prices of residential, particularly luxury property projects and lead to increase in demand. The move is also expected to bolster growth of other key segments, including offices, warehousing and industrial real estate.

Demand for residential properties will get a boost after the cut in corporation taxes because developers will be able to liquidate their unsold stock and thus reduce inventory. When developers invest money, they do so on new projects, which in turn generate employment. Prospective home buyers will buy more properties. With the tax cuts expected to boost earnings growth, investors are betting that corporates would use the savings to step up investments or reduce debt, though the stimulus has raised worries about the government’s finances. With developers offering various schemes and discounts, it is an opportune time to buy your dream house.

BOOST-IN-LUXURY-PROPERTY

Effect on Luxury Residential Properties

 Amit Kumar, CEO, Propertyxpo opined, “The luxury residential segment will get a boost from this move and have a positive impact on buyer sentiment encouraging more home buyers to invest in residential property. The move is also expected to push demand for warehousing and commercial real estate and it will be a big boost for SEZ’S and will generate a positive sentiment among investors to prompt their investments”

Sitharaman further announced companies which pay corporate tax at 22%, without any exemption or incentives, would not be required to pay Minimum Alternative Tax (MAT). Making the announcement, the finance minister said the new tax rate would be applicable from the current fiscal which began on April 1. In a bid to accelerate economic growth, the government has announced a series of measures over the past few weeks including a Rs 20,000-crore fund to provide last-mile financing for stalled housing projects. Realty experts said that reduction in corporate taxes is expected to bolster growth of industrial real estate development in the country and is likely to promote affordable housing. It would specifically support developers operating in special economic zones (SEZ). The real estate sector has been demanding the removal of MAT for SEZ developers.

Industry Opinion

Niranjan Hiranandani, president, National Real Estate Development Council said, “The reduction in corporate tax will incentivise corporates to pump up investments. This will provide more surpluses to corporates including real estate developers to use the same for prompting customers to act and generate more demand”. However, further incentives or price rationalisation is unlikely to materialise across markets and segments since the locations and projects that are already performing relatively better would not move in that direction. However, this can be a micro-market specific decision that developers will have to take based on their inventory, need for liquidity, project phase and response to the project so far.

Knight Frank India described it is a milestone effort towards kick starting the Indian economy and boost production. This substantial direct tax reduction will allow more liquidity for the corporates that are currently assuming drastic measures to protect their profitability. Property consultant Anarock Chairman Anuj Puri said: “This big-bang move will have a rippling impact on all sectors including real estate as it will encourage foreign institutional investors to invest in the country.” As and when the overall financial health of the economy improves with these slews of measures, there will be heightened activity within real estate – by both actual home buyers and investors alike,” he added.

Source:

  • https://economictimes.indiatimes.com/industry/services/property-/-cstruction/corporate-tax-cut-to-boost-liquidity-of-developers-boost-demand-realty-industry/articleshow/71221975.cms
  • https://www.thehindubusinessline.com/economy/fm-nirmala-sitharaman-proposes-to-slash-corporate-tax/article29466057.ece?homepage=true
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