A Home for your Budget

There is one dream that binds every Indian – the desire to own a house. However, this dream has turned into a nightmare for many because of the several lacunae in the system when it comes to dealing with real estate, which until recently was not even a regulated entity. That thankfully was taken up by the government by passing the Real Estate (Regulation and Development) Act (RERA), 2016, which will be implemented from May 1, 2017. Several state governments are working towards putting rules and regulations specific to their states.

There is something else that is changing in the housing space—the dimension of homes is shrinking. Some of the change towards smaller homes is demand driven. There is an increase in the appetite for smaller homes in Tier-I and Tier-II cities. This change has also impacted the high-end luxury homes, which are finding less takers. The 2015 announcement by the government on the “Housing for All by 2022” as a thrust area has further added colour to the housing sector.

Budget Bonanza

In his Budget speech, Finance Minister Arun Jaitley granted the much in need infrastructure status and tax incentives to the affordable housing segment. More recently, urban development minister Venkaiah Naidu asked all states to consider stamp duty waiver for such projects, which makes a very interesting case for the sector including buyers, sellers and lenders focusing on this segment. These incentives, coupled with softening of prices due to demonetisation, are developments that home-seekers could benefit from.

The budget proposals have the potential to translate an average Indian’s dream into reality, though a lot depends on how things are implemented on the ground. For now, however, the segment is flush with incentives, possibly paving the way for a boom in affordable housing in the coming months. The long-awaited demand to grant infrastructure status to affordable housing has brought cheer to the players in the market. Ever since the 2015 announcement, several specialised institutions have mushroomed with focus on servicing the needs of borrowers in the affordable housing space, who may not find a natural fitment for existing lenders.

On their part, builders too have got into the act by focusing on units that are more tuned with the affordable housing space in mind. “It should boost the volume of construction activity across the country, which has been struggling with reduction in the number of projects being launched over the last few quarters. The new status will increase the resource allocation for the sector, catalysing housing supply and reducing the supply gap,” says Brotin Banerjee, MD and CEO, Tata Housing Development. Increase in supply will be a win-win for developers, home-seekers and the government, which has set a target of building two crore units by 2022 under its ‘Housing for All’ programme.

However, for long, developers and builders have faced challenges with this segment because of lack of incentives to focus on this target. While demand for affordable housing has existed for long, most big builders did not favour this sector owing to thinner margins in this segment.”

“Infrastructure status will provide a boost in volume of construction activity across the cou7ntry by focusing at the bottom of the pyramid, where growth and potential exist,” says Harshil Mehta, CEO of housing finance company DHFL. This will help boost supply in affordable housing space, where the supply of units currently meets less than 10 per cent of the demand. “Smart cities will be a boon to Indians in this age of rapid urbanisation, but they will come with a shift of the Indian populace from villages to Tier I and Tier II cities, increasing the challenge of urbanisation with a shortfall of over 60 million housing units.”

Industry-watchers expect housing prices to trudge lower as supply grows. “With corporate houses, builders, developers refocusing their business in this space to take advantage of being classified under ‘Infra’, supply of houses in the range of Rs 10-30 lakh will increase,” says Kalpesh Dave, head- corporate planning and strategy, Aspire Home Finance Corporation. The infra status will also bring down lending rates at retail as well as project levels. “It will benefit the end user in this segment who is usually a first-time home buyer,” he adds.

The finance minister also relaxed parameters to qualify for affordable housing incentives. Now, dwelling units with carpet area of 30 sq m (for the four metros) to 60 sq m (for non-metro cities and towns) will be eligible for the benefits.

The other Budget moves that industry players have given a thumbs up to include extension in the tenure under the Pradhan Mantri Awas Yojana’s (PMAY) credit-linked subsidy scheme (CLSS) from 15 to 20 years, increase in allocation under PMAY to Rs 23,000 crore and allocation of Rs 20,000 crore to the National Housing Bank (NHB) for refinance. “It will improve the credit access at retail level thereby bringing more number of economically weaker, lower income and middle income families under the ambit of government schemes,” says Dave. The government also aims to complete 1 crore houses by 2019 for those living in ‘kachcha’ houses, which again is expected to create a housing boom in rural areas, if it materialises.

“One year tax exemption from notional rental income from unsold inventory after completion is expected to bring much needed respite to real estate developers who are struggling from sluggish sales post demonetisation,” says Dave.

Moreover, the government has also waived off the service tax for affordable housing. The budget measures were preceded by announcements made by Prime Minister Modi on December 31, 2016. “The announcement to boost mass housing in peripheral areas with attractive interest subventions and increase in the number of homes in rural areas set a precursor to the tremendously welcome moves announced in the Union Budget 2017,” says Mehta.

And then there’s the goods and services tax (GST), which industry players hope, could have a positive impact. “We have to wait and watch how the roll out of GST and its subsequent implementation will help in reducing the overall cost of projects, thereby increasing affordability for home buyers,” says Banerjee.

Why go for affordable housing

Given the likely growth in demand, tax breaks, lower prices post demonetisation and the government’s thrust on affordable housing, the segment’s prospects are clearly looking up, a good case to look at low-cost units. The status of infrastructure to affordable housing will allow additional private players to participate, adding to competition. “This will provide better options for consumers allowing them to buy their first homes. The carpet area of 30-60 square meters which will now be applicable as against built-up area of 30-60 square meters will attract and encourage more consumers to buy a home in this segment,” explains Banerjee. From investor’s point of view, reduction in holding period for property to be considered long-term from the previous three years to two years is another plus.

While actual home-seekers will no doubt benefit from the entire affordable housing ecosystem that is likely to take concrete shape, property investors need to tread cautiously. After all, the objective of affordable housing is end-use. Such projects will be housed at extended suburbs of Tier II and Tier III towns.

Dave of Aspire Housing does not think those with a short-term investment horizon in mind will find the investment lucrative. “A typical developer active in affordable housing space would be constructing the project with a lesser turn-around time as compared to a high-end or luxury project,” he explains. As any such delay will escalate cost of construction, making the price unaffordable for customers in lower income groups. Moreover, high income group customers, will not be keen on buying such flats with the aim of living there, due to distance from the city centre. “This may put the entire project in jeopardy and there is no typical “holding inventory” in affordable housing space. Hence, a short term investor would not be keen in investing in affordable housing units,” he adds.

Scores of Indians in smaller towns will be able to realise their dreams of buying a house for the first time, with focused housing schemes for the masses being presented and keeping the best interests of all stake holders. Here is your chance to having a roof over your head, which is affordable.

preeti.kulkarni@outlookindia.com