In an Interview with the Architectural Digest magazine, Architect Santosh Wadekar offers his perspective on the good, the bad and the ugly, in terms of the 2019 budget
Finance Minister Nirmala Sitharaman presented the budget on the 5th of June 2019, which received a mixed response from the construction industry. On the positive side, the budget has set forth a path for India to become a $5 trillion economy by 2025. However, we are heading into a transition phase which does not appear very rosy for our industry at this moment.
Union Budget 2019: Distribution of Wealth
It is clear that NDA 2.0 has swiftly moved in the direction of making the Indian story inclusive to everyone—sabka vikas—and ensuring that economic benefits enjoyed by the privileged few are shared equally with all the citizens. It appears that the main intention is to make sure that the cities, states and people did not enjoy the benefits of the opening up of the economy from UPA times have been given a large helping hand. This is welcome given the extremely unequal distribution of wealth in the Indian economy and the widening social disparity between the have and have-nots.
However the disadvantage is that this has happened at the expense of the upper middle class and the rich, who see themselves as a reason for driving the strong economy with their lavish consumption and spending habits.
Union Budget 2019: The Background
Realty, apart from stocks and gold is the most lucrative asset that the rich invest in. However the onslaught of DeMon, RERA and GST in quick succession damped the investor sentiments. The second hit was the severe liquidity crisis faced by developers due to NBFC defaults and rising NPAs of banks. This was compounded by the oversupply by over zealous developers in prime cities like Mumbai and NCR region that lead to the over saturation of markets creating a large inventory of unsold units. For a market reeling under this triple whammy, it held high hopes that the new budget would help break this deadlock and open up the market. However this has not happened to a large extent.
Union Budget 2019: The Good News
The budget has strongly focused on affordable housing by 2022. From easy financial assistance by lowered rates of interest, to tax SOPs for homeowners who can purchase houses upto ₹ 30 lac to ₹45 lac in smaller cities, this budget has surely created a positive sentiment in the vast majority of the middle class.
Reiterating its aspiration to create a New India, the Government’s thrust on alleviating the stress on the housing sector, finalisation of model tenancy act to promote rental housing, increased demand for low-cost housing units, FIIs & FPIs investment investment in debt securities issued by NBFCs as a default cushion and capital boost to PSU Banks will provide the necessary impetus to real estate and construction.
Union Budget 2019: Tax Talk
The budget has allocated the highest-ever budgetary support of ₹ 82,570 crore to the highway sector to create interlinked highways all across India. This will bring about a much needed infrastructure boost to the tier II and III cities as well as the vast rural hinterland. This will ensure that the demand for steel and cement that has declined due to the fall in the real estate sector is revived.
Higher taxes on imported materials of construction such as stone, hardware, branded furniture components will also set a field for local players and local materials to step up and exploit this opportunity. Demand for local materials hence would also boost the Make in India initiative, thus providing a much required impetus to the domestic manufacturing market.
Union Budget 2019: The Not-So-Good News
The take away from the budget is the additional tax on the HNI and the UHNI category. Most of these individuals live in the prime cities of Mumbai, Delhi, Hyderabad and Bangalore and many of them directly or indirectly drive employment and consumption for the real estate and the construction industry, be it through the lavish interiors for their residences in plush high rises or massive bungalows or their vast commercial offices. Though the additional tax may be a drop in the ocean for these billionaire’s wealth, it would nevertheless be perceived as a burden that could slightly dampen the sentiment.
The biggest damper for the interior construction industry would be a hike of nearly 20% in the duties of imported marble, and ceramic tiles. Roughly the marble flooring spend in an interior construction of a luxury residence is roughly close to 5-10% of the cost of total interior construction. A 20% increase would be a substantial hit.
Union Budget 2019: Old Laws vs New
Costs for imported mountings for furniture, HVACs, CCTV cameras AV equipment have all been hiked further escalating the cost of an interior construction spend. In cosmopolitan markets where the cost of realty is already inflated, this will overstretch the spend for a luxury house even further.
The affordable housing boost will not benefit cities like Mumbai where the cost of land is already sky-high. So a large section of people in prime metros will be still left fending for themselves in an already difficult market. Most prime property in city centres is still locked under the old land lordship “pugde” arrangements. Though the budget mentions creating a National Rental policy, despite several moves by the state there has been no clear direction on this. With a clear policy rethink on this matter, large chunks of land locked under litigation can be brought out in urban centres for urban affordable housing.
Union Budget 2019: In Conclusion
With the current direction adopted in the budget, the larger picture is certainly optimistic. However the industry needs to go through a lot of transitions to achieve that.
The hike on custom duties of imported materials for example is certainly a good direction to boost domestic manufacturing and production, however these now need to be of a world-class quality. The attitude of manufacturers needs to change from “can do” to that of delivering top-notch value to the consumers. Meanwhile the average customer will continue to feel the financial pinch.
I have always promoted genuine Indian companies who have delivered consistent quality and have given excellent service to customers. I believe this budget is a golden opportunity for such earnest players to rise up to the occasion and indeed pave a way for the “New India.”