[ecis2016.org] ecis2016.org News speaks to some prominent developers and consultants from the commercial realty segment, to understand their expectations and demand from Budget 2021
The commercial real estate segment witnessed significant changes in business dynamics in 2020, as many employees had to work from home (WFH) due to the COVID-19 pandemic. Many companies also found it cost-effective, to allow employees to WFH and consequently, some of them reduced their office sizes, to save on rent, resulting in a fall in occupancy levels of commercial spaces. The segment also faced challenges related to liquidity, delay in project clearances, high taxes and lack of attention, in comparison to the residential realty segment. The segment, hence, is hopeful that some of their demands will be fulfilled by the government, in the upcoming Budget 2021.
You are reading: What does the commercial real estate segment expect from Budget 2021?
Challenges faced by commercial realty
Most of the IT occupiers already had work from home as an option, during the pre-pandemic days. These firms are still evaluating whether their existing WFH policy would need further long-term changes, in the post-pandemic period. With occupiers evaluating their workplace strategies, employee wellness has become a focus area, with de-densification, i.e., more space allocation for each employee, to likely become a trend. Interestingly, many top occupiers have used this as an opportunity to structure deals to their favour and have signed up spaces to welcome their employees back to office, towards the second half of 2021.
“The uncertainty over the last 11 months resulted in delayed decision-making by occupiers. This resulted in a drop of 41% YOY (year-on-year) in terms of gross absorption of space across India. However, commercial office absorption is slowly picking up across the top six Indian cities. The rise in leasing activity is led by occupiers closing deals that were stalled earlier,” says Arpit Mehrotra, managing director, office services (south India) at Colliers International.
Commercial real estate developers are now evaluating and implementing contact-less systems in their current facilities, to welcome occupiers back, as employee wellness, digitisation of services and flexibility in portfolio takes centre-stage. Most of the ongoing projects are being delayed by developers, as the absorption levels have dropped and developers are focusing more on built-to-suit requirements at the moment.
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With the government aiming to make India a USD 5-trillion economy by 2025, experts maintain that India will need high-quality office and commercial spaces and large investments, to achieve this. Fund flows from foreign institutional investors will also be important.
Budget 2021: Reforms required to boost the commercial real estate
Krish Raveshia, CEO at Azlo Realty, expects the union budget 2021-22 to focus on measures to boost demand for the industry. “An investment of up to Rs 50,000 in REITs should be allowed as a deduction under Section 80C. Also, the holding period for REITs to qualify for long-term capital gain, should be reduced from 36 months to 12 months. This will spur retail investment in value-creating instruments like REITs. The differential treatment offered to commercial real estate vis-à-vis residential real estate, in terms of capital gains, notional rent computations and a higher GST slab, all disincentivise investment in commercial real estate and drive demand towards residential properties. Through fiscal policies, the government should bring commercial real estate more at par with residential, to stimulate investment in the sector,” says Raveshia.
A common demand from this segment, includes a continuation of the current low interest rate regime, to boost demand. Another demand is to enhance the ease of doing business, by limiting the number of approvals required to develop a project and granting the same within a defined timeframe. The sector is also looking forward to reforms/ fiscal boosters to ease the ongoing liquidity crunch, by increasing credit availability from banks. Experts believe that a relaxation in the under-construction quota for REITs that invest in commercial real estate, will provide the sector with much needed alternate sources of finance.
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Mehrotra adds that a reduction in stamp duty and registration charges across the country, will boost sentiments and provide the incentive to property buyers. “Data centres are an upcoming asset class, as digitisation and data privacy take centre-stage. Tax incentives can boost such niche asset classes. There should be further easing in the restructuring of loans undertaken by real estate firms at the project level. Digitisation of land records to increase transparency, will also improve investors’ confidence,” he concludes.
Budget 2020: Commercial realty gets some attention this time
While in the previous many budgets, the commercial realty sector had witnessed a muted response, this time, they seem to be lucky as the FM has addressed some of their demands
March 1, 2020: Post budget, while everybody’s entire focus is on the impact on the residential realty market, we explored the effect on another segment i.e., the commercial realty market. While in the previous many budgets, the commercial realty sector had witnessed a muted response, this time, they seem to be lucky as the FM has addressed some of their demands.
NAREDCO Vice Chairman Mr. Parveen Jain, says “The demand in the Real estate sector is expected to increase with the announcement of providing more hospitals, educational institutions, and manufacturing facilities and 100 more airports by 2024. This shall be a big boost for the construction and Real estate sector and all stakeholders and shall generate employment to a great extent at all levels, and the demand for housing, commercial, office spaces are expected to increase”.
Boost to startup will support the growth of commercial realty
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“Budget’s boost to startups, in terms of deferring employee taxation by five years, is a welcome move. Also, a startup with a turnover of up to INR25 crores (USD3.5 million) can avail a deduction of 100% of its profit tax for three out of seven years. The budget has now increased the turnover limit to INR100 crores (USD14 million) and extended the period of eligibility to claim a deduction from seven to ten years. We expect that cities like NCR and Bengaluru, with a considerable number of startups, should experience enhanced activity and we also see this as an opportunity for developers and investors in these cities as this change encourages new ventures and entrepreneurship”, opines Sankey Prasad, Managing Director and Chairman at Colliers International India.
Enhanced focus on logistics and warehousing
According to JLL, India, the National Logistics Policy and viability gap fund for the development of Warehouses envisages:
- To provide the impetus for increasing warehousing supply
- Supply expected to rise from 211 mn sq ft in 2019 to 379 mn sq ft in 2023
- Net absorption of 36 mn sq ft in 2019 to get a further boost
- Single window clearance to expedite supply as approval time expected to reduce by 6 months
Policy to build data center park
“The announcement on the digital revolution will play a big role in delivering services to the people in India that aims to achieve seamless delivery of services through digital governance. The Government will soon roll out the policy to enable the private sector to build data center parks throughout the country that will boost the commercial space”, says Mr. Anuj Khetan, Director, Vijay Khetan Group
Emphasis on infrastructure to boost the commercial realty sector
Mr. Rahul Grover-CEO, SECCPL, points out, “This year, the budget has revealed the Government’s intentions towards bettering infrastructure. The National Infrastructure Pipeline includes 6,500 projects across the country and Finance Minister Sitharaman has also announced the allocation of INR 27,300 crore for industry and commerce in FY21. The scope of commercial projects will show an incline, as can be seen from the Government’s plans of developing a 9,000-km economic corridor. Along with this, plans for developing strategic national highways have also been announced, which can help bring about developmental changes in the real estate sector as well”.
The FM has announced Rs 1.7 Lakh Crore to transport infrastructure. It includes railways. The Delhi to Mumbai express is targeted to be completed by the year 2023. Bengaluru airport is targeted to be completed by 2023 as well. According to experts, some big steps announced by the Government include 20% equity for the Bengaluru Suburban Transportation Project, 100 more airports by 2024, and the announcement of 5 new smart cities.
Jaideep, Ghosh, Partner, Travel, Hospitality, and Leisure, KPMG in India, explains, “Transport infrastructure is the backbone of our economy. Mega investments of US$25billion allocated to transport infrastructure covering roads, railways, aviation, inland waterways, and maritime as a part of National Infrastructure Pipeline projects, if implemented on a timely basis, could be a game-changer. National Logistics policy expected soon will be a critical catalyst for growth.”
The commercial realty sector has already done well in the last few years despite signs on slow- down in the residential realty sector; the budget support is expected to further boost the growth in the commercial realty sector in the near future.
Budget 2020 announcement that will boost commercial realty growth
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