The budget was positive for commercial property and affordable housing markets, key highlights being – 1) Dividend Distribution Tax (DDT) exempt in respect of distributions made by the Special Purpose Vehicle (SPV) to the Real Estate Investment Trust (REITs)/Business trust and in the hands of investors; subject to 100% ownership of the SPV; 2) 100% deduction on the profits for developing affordable housing projects for houses up to 30sq mtr (in metros) and upto 60sq mtrs (in other cities) approved during Jun'16 – Mar19 and completed within three years; with minimum alternate tax being applicable; and 3) first-time home buyers to benefit from additional interest deduction of up to Rs50,000 on loan not exceeding Rs3.5mn for a house valuing less than Rs5mn.
We believe the budget has provided the requisite bold tax concessions to promote establishment of Indian REITs, as per our expectations. We think DDT exemption has reduced tax leakage to near 20% (from 35% earlier) largely addressing industry concerns making Indian REITs a relatively tax efficient structure; and comparable with other REIT markets. Tax incentives for construction of affordable housing should resolve
execution/profitability concerns for developers. Further we believe interest concessions for first home buyers could help step-up housing demand
