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The Modi government’s continued focus on affordable housing, combined with its mission of ‘Housing for All by 2022’, has not only given a boost to affordable housing across the country, but has also brought many national-level players – who earlier used to focus only on luxury housing – into this segment. This explains why while the luxury and ultra luxury segments took some hit during recent years, affordable housing is still doing well in many parts of India. However, that is still not enough. If the government wants to achieve its mission of ‘Housing for All by 2022’, then it needs to give real estate, particularly affordable housing, a further push.
Here are a few things and incentives which Finance Minister Arun Jaitley can provide in the upcoming Union Budget 2018 to give a boost to affordable housing:
The government has already provided an interest subsidy of 3% to 4% under the PMAY for home loan customers under the Economically Weaker Section (EWS), Lower Income Group (LIG), and Middle Income Group (MIG) I & II categories. After the recent bank rate cuts, home loan interest rates in India range between 8.3% and 9%, depending on the borrower’s gender and occupation profile. “A subsidy of 3-4% pushes the effective home loan rates below 5%. However, as the property prices continue to be hardly affordable in most of the urban areas across Indian cities, despite the present low interest rate regime the market is unable to bounce back. Thus, a demand side push is required by creating more jobs and economic growth,” says Surabhi Arora, Senior Associate Director, Research, Colliers International India.
With increasing number of beneficiaries in Economically Weaker Section (EWS), Low Income Group (LIG) and Middle Income Group (MIG) aided by credit-linked interest subsidy scheme (CLSS) for housing loan under the Pradhan Mantri Awas Yojana in FY2017-18, the government should allocate more funds under CLSS in the upcoming Budget 2018.
Though the number of new launches in the residential sector denoted a dip in 2017, the number of launches in the affordable housing sector witnessed a rise with about 25,000 units launched in various Indian cities. However, we can see that land cost and lack of adequate infrastructure remain a concern. Thereby, “the government should look into expanding the estimates in terms of infrastructure investments and speed up the implementation process of ongoing infrastructure projects in the upcoming financial year,” says Arora.
As of now under section 80EE of the Income-Tax Act, first-time homebuyers are able to claim an additional Rs 50,000 in tax deduction during a financial year as long as some conditions are fulfilled. In fact, this deduction of Rs 50,000 interest payment on home loan was extended to home loans sanctioned during FY2016-17 up to Rs 35 lakh for properties worth up to Rs 50 lakh until you repay the home loan completely. “This was in addition to the existing home loan interest deduction of Rs 2 lakh. This deduction should be extended to loans sanctioned for all years starting FY2016-17 so that every first-time home buyer benefits in the future. The continuity in this deduction will encourage home buyers and boost demand in affordable housing segment,” says Chetan Chandak, Head of Tax Research, H&R Block India. Thus, FM Arun Jaitley needs to give a look at this aspect in the Budget 2018.
The Institute of Chartered Accountants of India (ICAI) has in its pre-Budget 2018 memorandum said that Sec. 80-IBA(2)(h)] prescribes a condition towards utilisation of Floor Area Ratio (FAR) to be 90% in case of four metros and 80% in other places. It is a factual position in the industry that there are two types of constructions. One is a high-rise/multi-storied buildings equipped with lifts and other structural specifications. Another is simple structure with Ground+3 or Ground+4 structures. In case of latter types of projects which are not multi-storied but low-rise buildings, it is practically not possible to achieve FAR of 80%. And most of the affordable housing comes under low rise buildings because of cheaper and faster construction. However, all these low-rise projects will never be able to fulfil the condition of 80% FAR utilisation. Thus, it has suggested, in such projects, the condition of 80% need to be revised to 60% of FAR to promote affordable housing.