Urban infra fund for development of 2,3-tier cities: Union Budget

The cities will be incentivized to improve their credit worthiness for municipal bonds through property tax governance reforms

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Infrastructure development fund

New Delhi: States and cities will be encouraged to undertake urban planning reforms and actions to transform cities into ‘sustainable cities of tomorrow’, said Union finance minister Nirmala Sitharaman, while presenting the Annual Budget for 2023-24 in Parliament on Wednesday.

This means efficient use of land resources, adequate resources for urban infrastructure, transit-oriented development, enhanced availability and affordability of urban land, and opportunities for all.

Urban infrastructure development fund

The finance minister mentioned that an Urban infrastructure development fund (UIDF) will be established through use of priority sector lending shortfall. This will be managed by the National Housing Bank, and will be used by public agencies to create urban infrastructure in Tier 2 and Tier 3 cities.

Infrastructure development fundMaking cities ready for municipal bonds

Sitharaman said that the cities will be incentivized to improve their credit worthiness for municipal bonds. This will be done through property tax governance reforms and ring-fencing user charges on urban infrastructure.

Urban sanitation

All cities and towns will be enabled for 100% mechanical desludging of septic tanks and sewers to transition from manhole to machine-hole mode. Enhanced focus will be provided for scientific management of dry and wet waste.

No booster shot for real estate: Anarock

The new measures announced in the Union Budget 2023-24 may certainly help unleash Indian economy’s potential. However, from a real estate point of view, there were no major direct announcements that could be seen as immediate booster shots, said Anarock Group chairman Anuj Puri.

The enhanced allocation for PM Awaas Yojana by 66% to over ₹79,000 crores is certainly a boost for affordable housing, which was flagging due to increased input costs and also because the buyers in this segment, mostly from the unorganized sector, were still reeling under the impact of the pandemic. It is another step towards the government’s Housing for All mission.

Also Read: 4 lakh homes made in 2022 across top 7 cities, highest in a year

The Budget lays much emphasis on building the infrastructure of the country, with emphasis on last-mile connectivity. Improved urban infrastructure will provide further impetus to Tier 2 & 3 cities. The unwavering focus on infrastructure will indirectly drive real estate growth over the next one year. The tourism sector also has something to cheer for as the budget aims to boost domestic and international tourism.

Impetus to MSME sector may have rub-off impact on real estate

As anticipated, the FM also tried to rejuvenate the MSMEs sector which has a multiplier impact on the growth of the overall economy. The revamped credit guarantee for MSMEs and special tax benefits and deductions will provide impetus to overall industrial development, and this can have a rub-off effect on the real estate sector since the pandemic slowed down demand for affordable housing in 2021 and 2022.

Resultantly, new supply in this segment also reduced. As per Anarock Research, 2022 saw a trend reversal with the share of new supply in the affordable housing category (₹40 lakh) dipping to 20% of total 3.58 lakh units launched in top 7 cities from 40% of 2.37 lakh units launched in 2019.

Changes in IT slab’s impact on housing to be seen

Changes in the income tax slabs, including exemption for income up to ₹7 lakh under the new tax regime and the new tax slabs, will doubtlessly benefit the middle class. However, whether the housing sector will get a collateral boost remains to be seen. The new tax regime offers no benefits that taxpayers can avail of under any Sections, including Section 80C – the previous home loan tax benefits.