Budget 2014-15: REITs & IIT Schemes likely to push Steel Demand in FY15

As per the Union Budget 2014-15, government provides incentive to Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (IIT), which will be ultimately beneficial for the Steel Industry.

What is REITs?

REITs is like a mutual fund, which invests in real estate instead of securities. Under this, money is pooled from a set of investors and invested in income-producing real estate assets. This investment may either be in the form of properties, mortgages or mortgage-backed securities.

This will definitely boost the real-estate sector for long term. Moreover, it is likely to attract global & domestic investor in this sector and bring more transparency.

How REITs will increase the Re-bar Demand?

• Construction activities will increase
• Funding option for builders will raise
• Rental property availability will rise

Other Steps taken to increase Re-bar Demand

In the current Union Budget 2014-15, important steps has been taken by the government to boost the real estate sector, which are as follows:

• Allocation of INR 70.6 billion for 100 smart cities
• Allocation of INR 40 billion to affordable housing for the urban poor through the National Housing bank
• Hike the interest rate deduction limit to INR 2 lakh from INR 1.5 lakh on personal home loans
• Ease of FDI in this sector and slum development will be included in the list of Corporate Social Responsibility

Apart from this, some more proposed measures are:

• Provide INR 5 billion to boost rural power infrastructure
• Allocation of INR 143.89 billion & INR 36 billion for rural road plan and water supplies respectively
• 15,000 Km of pipeline for the oil & gas sector; 8,500 km for roads

If the proposed plan will implement in the infrastructure sectors, definitely the demand is going to increase for long products especially Re-bars in the coming days. This is a positive indication for the existing Re-bar manufacturers which have  a capacity to produce 40 MnT pa, but only produce 29 MnT pa on low demand. As per the SteelMint survey, the new capacity of 9 MnT pa will be adding to the present capacity in FY15

Expansion & Modernization plans by the Major Public Sector Units (PSU) in FY15