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Indian budget falls short of property expectations

Submitted by on Wednesday, 24 September 2008No Comment

The Indian 2008 budget was released recently and in it there were no major changes to anything in the property sector. While the real estate sector does indirectly benefit from some of the changes, there is no direct benefit from the government to the sector in the budget.

Property developers and REITs are among the groups disappointed with the budget.

The real estate industry in India faces disappointment this week due to the release of the 2008 budget. The sector was looking for new tax propositions to bolster the markets but will have to rely on success in other industries. REITs (Real estate investment trusts) were expecting new tax provisions that would result in lower taxes for domestic and foreign investors. It was believed that any such provisions would stoke the flames of buyer interest, increasing the need for home loans.

REITs and real estate funds will not benefit directly with the new 2008 budget. They will however benefit as other sectors receive benefits.

There are several changes that will still have a positive effect on the real estate market. Construction costs are going to fall due to lower duty taxes. Tourism will also receive a much needed boost. Increased tourism also increases desire for home loans as foreign investors look to the rental property market as a source of income.

New two, three and four star hotels will be given a tax holiday if located in specific districts. These districts are based on world heritage sites and should work to promote foreign investment and tourism in India. The qualifying hotels must begin operations between April 2008 through March 2013.

Hospitals will be able to take advantage of a similar tax holiday. A qualifying hospital will be provided a tax holiday for up to five years if it begins operation during the same period. The hospital must have a minimum of 100 beds and can be located anywhere in India. Modern health care facilities have been proven to attract more tourists. As construction on the new hospitals and hotels begins, the tourism market and economy should see an increase, and that may prove helpful to the property market despite the 2008 budget problems.

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