Affordable Housing For All: How Close Are We Of Achieving It

Has our present government, which had set an ambitious target of providing affordable housing for all by 2022 in its 2019 budget, done enough to help the real estate industry to come out of the woods in its budget proposals last week? With the country itself passing through the worst of economic slowdown, a revival in the housing industry would have helped the overall economy regain its growth momentum. Of course, there is some encouraging news that points to green shoots, with the banks reporting some improvement in demand for home loans. However, there could have been more bold initiatives that could have lifted the sentiments in India’s residential real estate industry from doom to gloom.

According to industry experts Finance Minister Nirmala Sitharaman, who even prodded the banks for not effectively passing on the RBI rate cut benefits to home loan customers in full could have been more forthcoming when it comes to opening the purse strings for the homebuyers. They point out that the expectations from the Union Budget for the next financial year have to be taken into consideration against the backdrop of the real state of the real estate sector and the government’s ambitious goal of providing housing for all by 2022. With the deadline fast approaching and the numbers not showing up that much enthusiasm among homebuyers, the Budget could have done a lot more to lift the mood. A one per cent increase in home sales per year, as was reported in 2019, is definitely not going to help the government achieve the target.

One has to keep in mind that India’s real estate sector has come a long way, marking a paradigm shift from government-provided housing to market-provided housing. With the government also pushing for market-provided housing, it’s time that the government take initiatives to consolidate the gains of the market and the institutional infrastructure, and ramp up financing and construction on a rapid and mass scale. The overhang of incomplete projects and unsold inventory continues to pose a challenge to the housing as well as the financial sector, even as liquidity concerns along with credit risks are palpable and buyers are feeling left in the lurch.

The real estate industry, in the run-up to the Budget, had urged the government to reduce the interest rates on home loans to 7 per cent and increase the income tax deduction for interest paid on housing loan to Rs 5 lakh to help revive demand for home loans. Industry body National Real Estate Development Council (Naredco) had also asked the government to redefine affordable housing to extend tax benefits to bigger houses that cost more than Rs 45 lakh. A spurt in demand for home loans among the high-income groups, according to market experts often always percolates to better demand among the middle-income group and lower-income group, with buyers often letting go the old and relocating to the new homes. Presenting its wish list, Naredco had said: “Fiscal stimulus to the real estate sector will have a manifold effect on 269 allied industries with multi-dimensional impact on enhancing the GDP growth inclusive of employment creation… In this Budget 2020, the Indian real estate sector expects a holistic solution rather than piecemeal solutions.”

Industry experts point out that there is nothing reformative in extending the availment of tax exemption on profit for builders for approved affordable housing projects year after year. Such exercises are unlikely to excite the builders in any significant measure and is usually confined to the Budget speech and the tax book. What is required is to take stock of this provision in terms of its impact on the ground, among the homebuyers and those going for home loans. No wonder, the Budget proposals, extending the existing provision of allowable deduction of interest on housing loans up to Rs 1.5 lakh (on self-occupied houses)  is seen merely cosmetic and symptomatic of not recognising the seriousness of the problem by the industry experts.

Niranjan Hiranandani, the president of NAREDCO and MD, Hiranandani Group, well reflects this concern when he wrote after the FM’s budget presentation, “For real estate, ‘affordable’ remains the government’s favourite in housing, with the previous tax exemptions for both homebuyers and developers being continued for one more year. Commercial real estate segments may witness a boost, with the focus on warehousing, data centres, schools, hospitals and hospitality. Again, the market reality is that there is a difference between ‘circle prices’ and the price points at which transactions are actually taking place, provision for this could have been done.”

Also, raising the allowable deduction in income tax on interest rates to Rs 2.5 lakh could have been a potent measure to stimulate demand for a housing loan as well as improve affordability. This, according to experts, could be backed by the Credit Risk Guarantee Fund Trust on the low-income housing, and parked with the NHB. These measures would help improve demand for housing loans as well as the supply of credit as they would have acted as a risk-mitigation measure for lenders with 100 per cent guarantee cover for low-income housing, and the mortgage guarantee cover of the India Mortgage Guarantee Corporation for moderate and high-value loans. Provision for a special line of liquidity for HFCs through the NHB in the Union Budget and quick coordinated action by all the stakeholders could have helped build confidence in the sector, say experts.

What market studies say

According to the latest Knight Frank India’s India Real Estate report, across the country’s top eight cities, the residential real estate market recorded a marginal growth of one per cent in sales volume in the year 2019. The overall sales volume was at 245,861 units versus 242,328 units in 2018, that is a marginal rise of one per cent. The consultancy noted a slight improvement in affordability “as developers aligned themselves with the needs of home-buyers” to encourage sales by reducing ticket sizes and unit sizes in a bid to boost sales.