Housing Gets Affordable

Sometime in April this year, 34-year-old Bengaluru-based, Jason Selvin zeroed down on his dream house on Mysore road in Bengaluru. In the second half of 2020, he plans to move into his 2BHK apartment in Salarpuria Divinity. "The builder has promised to hand over the flat in June 2020," he says with a glint in his eye. Selvin, an IT professional, has taken a loan of Rs 55 lakh at 8.6 per cent interest, and will start paying an EMI of Rs 68,000 soon. "Low interest rate and tax benefit on the interest paid for home loan makes it a good time to buy," says Selvin reasoning why he decided to make his home purchase now.

Buying a house is a must for most Indians and nothing brings greater sense of comfort than having a roof over your head. Buying a house is also perhaps the biggest financial decision most Indians take. The well spread out home loan operations across the country have been the catalyst for widespread home purchase over the past two decades, in which time most borrowers have tasted the benefit of changing interest rate cycles resulting in their home loan EMIs fluctuating at times. But, most home loan takers are known to close their loans much before the tenure for which they land up borrowing.

A house for every Indian

The call for Housing for All by 2022 by the government in 2015, has given impetus to the real estate sector, which was struggling to sustain itself over the past decade after stagnation and steady decline in real estate transactions. In his speech on December 31, 2016, Prime Minister Narendra Modi announced a slew of measures including interest subvention of 4 per cent for loans up to Rs 9 lakh and 3 per cent for loans up to Rs 12 lakh taken in 2017 under the much talked of Pradhan Mantri Awas Yojana (PMAY).

Ever since the call for Housing for All by 2022, real estate developers who were mostly focusing on large-format luxury homes changed their tactics to fall in line with popular demand for affordable housing and started constructing homes that could qualify for the PMAY scheme. "The Housing for All initiative by the government coupled with interest concessions has prompted builders to focus on the affordable housing segment," says Govind Sankaranarayanan, chief operating officer - Retail Business and Housing Finance, Tata Capital.

Many builders who had not yet commenced construction, started to change layouts to meet the affordable housing scheme to create demand. "In order to match the affordability and customer needs, especially in the metros, builders have reduced the size of the apartments, thereby making it an attractive proposition to buy. The customers have also welcomed this and find it attractive to invest," says Vinay Sah, MD and CEO, LIC Housing Finance. From a near halt in project development, several real estate projects are getting back on track and focusing on building projects that fall in the affordable housing space.

Budget trigger

A further push was given to the affordable housing segment by granting it infrastructure status. This will encourage real estate developers to borrow at lower rates for affordable housing projects. Lower rates of borrowing would help keep costs in check for the real estate builders helping them in keeping affordable housing projects profitable. With so much in favour of real estate, there could not be a better time for affordable housing and a home for first time buyers, given the additional tax benefits that they enjoy if they take a loan under the PMAY scheme.

"The moment I got to know about the PMAY for Middle-class income group (MIG) and that a loan subsidy of Rs 2.35 lakh was available for first time home buyers, I started looking for a house," says Jeffry Roy. The 33-year-old, Kochi-based business analyst lost out on this additional benefit as the flat he landed up buying was in a panchayat area and that PMAY MIG scheme was only for properties in urban areas.

"In addition, the Credit Linked Subvention Scheme (CLSS) under PMAY for Economically Weaker Section (EWS), Low Income Group (LIG) and Mid Income Group (MIG) offers interest subsidy up to 6.5 per cent subject to conditions and stable property prices makes it the best time to buy a home," says Renu Sud Karnad, managing director, HDFC.

Regulations in place

Although real estate has so many people involved in the purchase, sale, and redevelopment-the sector was never regulated properly. Yes, one needed permissions from various civic bodies before starting a project, but there was never anything that regulated developers, who in turn operated the business in an opaque manner. With the Real Estate Regulatory Authority (RERA) coming into effect from May 1, 2017, a lot of that is going to change and is already changing. In one go, accountability and transparency in the operations of real estate developers has come to play a big role.

"RERA has made it mandatory for the real estate agents to register, which means builders can sell only through these registered agents," says Kalpesh Dave, head - Corporate Planning and Strategy, Aspire Home Finance Corporation. The law takes into account buyer interest and protects them against the builder lobby, which is known to be notorious in keeping with its delivery timelines and even quality of construction. "Buyers are now protected from frauds, mis-selling, cheating, fund diversion as RERA makes developers more responsible to deliver quality projects to their customers," adds Dave.

Several developers have started to claim being RERA compliant with on-going projects. "My project is also RERA compliant but I have not seen any official communication on that," says Selvin. He is a bit nervous after having heard of several delays in projects. "I am still sceptical on how it will be enacted on ground. Karnataka ratified a very watered down version of RERA only a few weeks back and I am waiting for more clarity on the matter," Selvin voices his concern.

But, concerned developers are working hard to make RERA compliance a talking point in their sales pitch. The coverage on RERA has also reignited buyer interest in real estate, as many buyers feel safer to invest in projects this time around. "Most recent announcement on RERA, has raised consumer confidence, triggering a demand for affordable housing and finance over the last few months," says Harshil Mehta, CEO, DHFL.

The other driver for an uptake in home loans is the new method of lending that banks adopted from April 1, 2016-Marginal Cost of Funds based Lending Rate (MCLR), which replaced the base rate system, as per the Reserve Bank of India's (RBI's) guidelines. "This brings in transparency as the lending rates linked to MCLR become relatively more dynamic. In the lower interest rate cycle like the current one, the borrower having loan linked to MCLR tends to benefit as downward change in the repo rate will lead to lower MCLR and rate change will be passed on relatively faster. The opposite will also hold true," says Dave.

Another trend being witnessed is that of real estate going beyond the metros, thanks to the thrust given to the Smart City Mission. Many projects and huge development are being seen in the smart cities, which are emerging into development hub. While those needing a home do not base their purchase decision on lowering interest rate or changes in regulation, the time is definitely conducive to consider buying a house for first time buyers. The government push, demographics of a strong number of young Indians and economic cycle which is at the cusp of a takeoff, all bode well for the housing sector.

As for buyers, the choice of a home which is affordable-along with the new regulations -are signs of regaining confidence in buying homes. To tap the opportunity, several small housing finance companies are focusing on funding homes for buyers in the lower and middle income groups, where credit scores are not always the basis for lending. "Lower interest rates and MCLR linked rates influenced my decision to buy a house. Also the location suited me," says Roy. One thing that is emerging clearly is that the old rent vs buy debate has almost ebbed, with almost everyone favouring a home than thinking of living on rent.

anagh@outlookindia.com