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Affordable and mid-income housing will continue to perform well

Affordable and mid-income housing will continue to perform well

by Kaushal Agarwal, Chairman, The Guardians Real Estate Advisory
The budget of 2020 brought Indian Real Estate nothing more than a passing mention. The sector that has been reeling with a perpetual slowdown, over the past several years, was expecting everything from an Industry status to no tax up to an income of ₹ 5 lakhs for all, from extending the additional tax benefit for home loan interest to a circle value of ₹ 1 crore from ₹ 45 lakhs to increasing the standard deduction to ₹ 75,000 for salaried professionals that could benefit not less than 2.3 crore salaried taxpayers, from extending tax rebate on the development of affordable housing to extending the period of exemption from levy of tax on notional rent, on unsold inventories, to 3 years receiving the Occupation Certificate, keeping in mind the slow reduction in unsold inventory levels, etc.

While a few of the demands were addressed, like extension of the tax benefits by another year for developers of affordable housing and enhancing the partial credit guarantee scheme for NBFCs, a lot many still await government’s attention. The alternate tax slabs hardly put more money in the hands of the consumer, which today has become imperative to beat the slowdown. While the government has shown it’s resolve to deal with supply side problems by reducing the corporate tax to one of the lowest in the world, it needs to now divert it’s energies to addressing the constraints on the demand side.

Real Estate is a classic example of the demand and supply mismatch, the supply today in the sector has far exceeded demand across the country. The pile-up of unsold inventory across metros, especially Mumbai, reducing at a snails pace is alarming. The economic survey, that precedes the budget, suggested that developers will have to reduce prices to get rid of the unsold inventory; the same is easier said than done. The high debt exposure in the sector, cautious lending by NBFC’s, high transaction and borrowing cost for the consumers are also issues plaguing the sector and therefore, reduction in prices may not necessarily be the only solution to address the demand side issues. Real Estate as a category needs help on several fronts including liquidity, demand generation, fast paced & single window clearance and mitigation of the trust deficit amongst the homebuyers. The government’s reforms like RERA have played an important role in bringing about transparency; the reduction of the key policy rates by 135 basis points across last year is a step in the right direction to bring down the borrowing cost but the banks are yet to pass on the benefits of the rate cut to ensure the benefits are transferred to the eventual home seeker. It here that the government must step-in. Industry status and single window clearance will go a long way in addressing issues of liquidity and faster turnaround time for projects, respectively.

The industry today has come to realise the demand potential that affordable and mid-income housing possess. It is one vertical that has stood out as an outlier amidst the slowing growth in the sector. Having said that, the potential of affordable housing is still largely untapped. The Prime Minister’s vision of ‘Housing for All by 2022’ can be accomplished if the government adds further vigour to Affordable Housing. The government has accorded industry status to this category, reduced GST to 1% for homebuyers of affordable housing and also offered tax benefits to developers of projects with affordable homes. In spite of these measures the supply of affordable housing and the subsequent demand is yet to pick-up pace. The industry of affordable housing faces challenges around land acquisition cost, education amongst the weaker section of the society for whom the homes are built, high borrowing cost, to list a few. Aggressive and fast paced reforms can add pace to this category. The category should be accorded tax free status, both for GST and Stamp duty, to nullify the transaction cost for the consumers of such homes. Education to the LIG & EWS section of the society should be taken up in a big way to spread awareness about the benefits of the Pradhan Mantri Awas Yojana, currently a lot of the prospective customers are not fully aware of the benefits and eligibility criteria of PMAY. Developers of Affordable Housing are currently, finding the land cost around the city to be very expensive. To design and deliver a product that is not expensive, it is important to ensure lower costs for the developer to ensure long-term viability of such projects. Offering a low borrowing cost for the affordable housing developers could substantially offset the high land cost. These aspects once considered, could bring in robust demand in this blue-eyed industry of the government.

The industry today is expecting a lot from the government, especially when it comes to liquidity. With a lot of NBFC’s today becoming cautious, there is a need for well capitalised NBFC’s to fill-up the void. The struggle today, is on both fronts from funding to projects and lending to customers in desired schemes like subvention. Propelling NBFC’s to look at subvention funding to eligible homebuyers, which stopped after the NHB Circular, should be looked at to attract demand. Subvention schemes are a big hit amongst homebuyers. Developers on the other hand are looking at funding to complete their projects, as sales revenue has dipped over the past few years. The government’s ₹ 25,000 crore package for real estate is slowly and gradually picking pace. It is a welcome step and address supply side challenges. The industry expects the package to increase further in times to follow.

In the year to follow, affordable and mid-income housing will continue to perform well. With budget homebuyers expecting the very best of amenities and facilities within a tight budget, smaller sized and zero wastage apartments across metros are in trend. These kinds of homes are delivering both on price and volumes for developers. Commercial real estate is becoming a lucrative proposition for investors, and in 2020 they will continue to thrive basis the rental yields they generate. Addressing demand side challenges starting this year, is key for Real Estate to contribute 13-14% to the GDP by 2025, which currently is at around 7.7-8%.’’



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