Union Budget 2017-18: Impact on Global Investors

From the enactment of the Real Estate Regulation Act (RERA) to the long pending GST Bill to the recent demonetisation drive – the year 2016 saw some of the most remarkable policies and reforms initiated by the government. Not only did these act as a catalyst in making the sector more organised and professional but also helped in restoring the faith of global investors in the Indian markets, which had largely tumbled due to policy inertia and overall economic conditions at large.

As Mr. Jaitley doled out sops to the real estate sector in the Union Budget 2017-18, the value of realty stocks in the country shot up rapidly. On the Bombay Stock Exchange (BSE), the shares of realty giants such as DLF, Godrej Properties, Oberoi Realty and Prestige Estate Projects surged 6.74 per cent, 5.13 per cent, 6.38 per cent, and 4 per cent, respectively.

For a long time now, Indian property market has been a lucrative investment option for the non-resident Indians (NRIs). And with transactions in cash becoming passé, more and more NRIs are likely to take the plunge in the market. So, how did this year’s budget fare for the NRIs and global investors?

Well, “Overall it was an extremely sensible budget that focused on promoting long-term and sustainable growth even as the country and its economy faces many headwinds from global issues such as BREXIT, US politics, increasing oil prices and general uncertainty,” says Anshul Jain, Managing Director, Cushman & Wakefield, India.

Reiterating the same, Ashwinder Raj Singh, CEO – Residential Services, JLL India says, “The budget has been broadly real estate friendly and the NRI too will benefit. This is especially on the back of the promise of transparency becoming a reality in the Realty sector – forcefully pushed along by the demonetization process, benami act and the regulations under RERA.”

He further adds that the transactions by NRIs are already showing improvement, since well-established reliable developers are not only delivering completed apartments in time but also offering critical value-added services like asset management services and rental facilities.

On the FDI front, a major step that garnered applaud from the foreign investors was the abolition of the Foreign Investment Promotion Board (FIBP) after twenty-five years of its existence. Finance Minister in his speech said, “More than 90 per cent of the total FDI inflows are now through the automatic route. The Foreign Investment Promotion Board has successfully implemented e-filing and online processing of FDI applications. We have now reached a stage where FIPB can be phased out.

Welcoming the move, Anuj Puri, Chairman & Country Head, JLL India said, “a new roadmap is to be announced in the next few months. This will give the real estate sector access to significantly more funding than it has today. A new FDI policy is under consideration, which promises to liberalise the FDI regime further.”

Another provision which has been introduced in the current budget exempts non-residents from taxation over transfer of rupee dominated bonds of any Indian companies issued outside India to another non – resident. “This will ensure less liquidation of these bonds as non – residents who in requirement of liquidity can transfer it to other non – residents at zero tax rather than liquidating it against the purse of the issuing company,” says Vikas Bhasin, MD, Saya Group.

Further, reduction of long term capital gains to two years from earlier three years will also provide respite to investors. This move is likely to bring in more supply in the market at a more competitive price. As of now, long-term capital gains can be availed for property held over three years. NRIs can claim exemptions under Section 54, Section 54EC and Section 54F. Long-term capital gains are taxed at 20 per cent and are also subjected to a TDS of 20 per cent. However, if a property is sold before three years from the date of purchase, then the TDS of 30 per cent is applicable. Well, with the revised norm, investors will no longer have to wait for three years to sell their properties. That’s not all! The government is also planning to extend the list of financial instruments in which the capital gains can be invested without payment of tax.

NRIs were, however, expecting tax reforms related to property selling in India. As of now, to avail tax exemptions, NRIs should sell their property to either Indian residents or to other NRIs or PIOs. Though nothing has been done on this front but as they say no bad news is good news explains the situation well.

All in all, it wouldn’t be wrong to say that the Union Budget 2017-18 has been a mixed bag for global investors.

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