By all indication it is going to take time for the real estate to rebound. Though there are visible signs of green shoots, the commercial real estate recovery depends on how soon normalcy returns and work from home cedes. And residential real estate revival depends on job security and hefty pay package for revival. Both are now a distant dream. This leaves the sun to shine on the Affordable housing and bloom with government support and incentives
Real estate contribution to the economy is enormous. It is the second largest employer after agriculture. According to reports real estate is expected to contribute 13% to the country's GDP by 2025. The growth of real estate industry has a cascading affects on close to 100 allied industry, be it cement, steel, concrete, tiles, ceramic, electric fittings. PVC pipes, sanitary wares, paints. Commercial real estate has fared much better than residential real estate. The demand for residential real estate has been sluggish for close to a decade. In the last decade, real industry too underwent policy upheaval. To bring in more transparency and accountability to the realty sector, the government brought in stringent laws like Real Estate (Regulation and Development) Act (RERA), Benami Transactions (Prohibition) Amendment Act, 2016 followed it up by reward schemeBenami Transactions Informants Reward Scheme, 2018 to crackdown on benami properties. This scheme promised to give a person reward of upto Rs 1 crore for giving specific information about benami property. While the RERA act protect the interest of the homebuyers by ensuring that developers complete the projects on time, give detail information of the project plan, layout, government approvals, land title status, and sub-contractors; failing which the developers will attract a penalty up to 10% of the project cost and a repeated violation could send the developer in jail.The law also ensured developer deposits 70% of the money collected from a buyer in a separate escrow account to meet the construction cost of the project to keep a check on developers who divert the buyer's money to start a new project, instead of finishing the one for which money was collected.These act made dubious developers to exit the real estate market. These acts were further strengthen by the introduction of Goods and Services Tax (GST) and demonetization. These acts brought about a revolution in realty market. The reputed developers carried on with their businesses while the small time, part time and dubious builders left the market forever. The investors too left the residential real estate market, now what was left were only the genuine buyers.
With the investors gone and genuine buyers low on purchasing power, the government brought in many schemes to revive the sluggish realty market. In June 2015 the government came up with affordable housing scheme when the Pradhan Mantri Awas Yojana (Urban) or PMAY (U) was launched as part of the ambitious ‘Housing for All by 2022’ mission. Under PMAY, it has been proposed to build two crore houses, including the economically weaker section and low-income groups in urban areas by the year 2022 through a financial assistance of Rs two lakh crore (US$28 billion) from central government. According to the latest press release by Press Information Bureau (PIB) as on date, the total number of sanctioned houses under PMAY(U) is now 1.07 crores as against the validated demand of 1.12 crore.About 67 lakh houses are grounded for construction and more than 35 lakh have been completed and occupied. Total investment under the Mission is Rs 6.32 lakh crore which has Central assistance of Rs 1.68 lakh crore of which Rs 72,646 crore of funds have been released.
Sensing the reluctant of developers to take up Affordable Housing project and to achieve the set targets under the PMAY-U, the government accorded “Infrastructure status” to Affordable Housing in Union Budget 2017-18. The government also reduced Goods and Services Tax (GST) on under-construction Affordable Housing project from existing 8% to 1% without Input Tax Credit (ITC) and increased Priority Sector Lending for Affordable Housing Project from Rs. 28 lakh to Rs. 35 lakh in metros and from Rs. 20 lakh to Rs. 25 lakh in non-metros. The government is well aware if it has to achieve its target of “Housing for All by 2022” it has to incentivize the affordable housing sector so that more and more buyers purchases affordable housing. In its mission towards providing hassle free loan environment for buyers of affordable housing, the government set up Affordable Housing Fund in National Housing Bank, introduced additional deduction of Rs. 1.5 lakh on account of Home Loan Interest in addition to the deduction of Rs. 2 lakh for affordable housing. The government extended 100% deduction on profits for construction of affordable housing projects under section 80-IBA of the Income Tax Act and widen the scope of section 80-IBA from 30 to 60 square meters in metros regions and 60 to 90 square meters in non-metros cities.
In order to give relief to homebuyers of stalled projects, a Special Window for Completion of Affordable and Mid-Income Housing (SWAMIH investment fund) has been created for funding stalled projects that are net-worth positive, including those projects that have been declared as Non-Performing Assets (NPAs) or are pending proceedings before the National Company Law Tribunal under the Insolvency and Bankruptcy Code. SWAMIH investment fund will provide last mile funding to the stressed affordable and middle-income housing projects in the country.
In addition to these, the government during the Pandemic to protect the interest of all stakeholders,issued the necessary advisory to all States/Union Territories and their Real Estate Regulatory Authorities for issuance of requisite orders/ directions under enabling provisions of Real Estate (Regulation and Development) Act, 2016 (RERA) to invoke force majeure clause to automatically revise / extend completion date for all real estate projects registered under RERA for a period of 6 months. Reserve Bank of India (RBI) too pitched in by announcing liquidity infusion of Rs. 3.74-lakh crore. The affordable real estate sector benefited from repeated repo rate cut by RBI which resulted in home loan interests coming down to sub-7%.
Efforts bore fruits
Government efforts has the desired affects, according to Real Insight Q3 2020, a quarterly analysis of India’s eight prime residential markets by leading online real estate brokerage firm PropTiger.com, residential home sales aggregated to 35,132 units during Q3, an increase of 85% over the previous quarter. Housing units in the sub-Rs 45 lakh price bracket, categorized as the affordable housing segment under income tax laws in India, made the biggest contribution to sales during the quarter, contributing 45% to overall sales numbers.While year-over-year sales comparisons may not be relevant given the current extraordinary circumstances, this pointed to a significant decline of 57% compared to Q3'19. New supply grew almost 60% on a quarter-over-quarter basis with 43% of the 19,865 units launched coming in through the affordable housing segment. The numbers point to the importance of the affordable housing segment in the future growth of the sector.
According to JLL India, development focus on mid and affordable segments continued in Q4 2020 with more than 80% of the new launches in the sub INR 10 million (INR 1 crore) category. Moving ahead, the focus on this price segment is expected to continue with developers trying to reap benefits of strong pent up demand in this segments. Most of the new launches in the southern markets of Bengaluru, Chennai and Hyderabad were in the sub INR 10 million category. “Given that the affordable and mid-segments (sub INR 1 crore) continue to witness maximum sales traction, select developers are also reviewing their projects to make them more aligned to buyers, both in terms of product and price,” says Dr. Samantak Das, Chief Economist and Head of Research & REIS, JLL India.
“Over the last few years, there have been many government interventions to propel demand in the affordable housing segment. These interventions, particularly the credit subsidy scheme, ensured a complimentary focus even on the supply side from developers and institutional investors. In this backdrop, in terms of sales in the segment, which we define as under INR 5 million house value, there has been a tapering of market share over the last few years. Further, Covid-19 disruptions has impacted the lower income segment relatively more adversely, which in turn is also getting reflected in residential sales in the affordable segment. As economic activities start to pick up this year, we expect housing sales also to pick up in affordable segment. The fortune of this segment has strong linkage with economic growth and job creation and with an expectation of sharp economic improvement in 2021, we believe this segment will make a comeback. Amongst markets, Kolkata, Ahmedabad and Pune will see a dominance of the affordable housing segment given the prevalent price levels and growth of industrial sector in these markets,” says Rajani Sinha, Chief Economist and National Director Research, Knight Frank (India).
Challenges and opportunities
There happened few innovations during the Pandemic. One such concept that emerged and is quite popular is Work from Home. To curtail the spread of Covid-19, the government has imposed several restrictions. There are few options to travel to workplaces as trains in major cities are still not opened for general publics and buses are strictly following the Covid-19 rules of mask, gloves, sanitization and distance from co-passengers. Seeing the difficulty in travelling, corporates have allowed employees to work from home. Few of the big corporates have extended work from home till the end of this financial year. This has given a renewed impetus to affordable housing. With interest on home loan at a all time low and governments various incentives for affordable housing buyers opting for affordable houses.
The Pandemic has devastated almost all the industries. The economy is slowly limping back to normalcy. Many companies have shut down. Many employees have lost their jobs and still many employees are getting part payments. Bulk of the residential realty buyers are salaried employees who have taken home loans to buy their homes. Now with no jobs or part salary they are finding it difficult to pay EMI and are considering moving into affordable houses which are comparatively cheaper than where they now reside. The concept of work from home has taught us the importance of owning a home. Now, those who are in rental apartment too are considering to owning house and shift to affordable houses.
The prime reason for affordable housing being not being preferred by home buyers was because most of the affordable housing projects are built at the outskirt of the cities. Developers pin points lack of availability of land at affordable price within city limits, rising cost of construction due to space crunch, lengthy regulatory process in cities, high fees and taxes among others that are hindering the growth of affordable housing projects within city limits. But the pandemic has brought a change in developers thinking. Nowadays affordable housing though at the outskirt of cities are huge housing complexes, integrated township, some are gated projects. These affordable housing projects comes with all modern amenities within the projects that are available in cities such as shopping malls, grocery stores, cinema halls, gardens & parks, hospitals, gymnasium, transportation and other modern amenities.
Sun shining bright
The government is keen to achieve its target of “Housing for all by 2022” and affordable housing provides a perfect vehicle to fulfil the dream target. The government has extended its hand in clearing the grievances of developers and according to circumstances the government is extending all help to the home buyers by providing home loans and subsidy. To make the construction of houses cost-effective and innovative, the government launched the Global Housing Technology Challenge (GHTC)to fast-track the construction of affordable housing and meet the target of constructing 1.2 crore houses by 2022. Rapid urbanization, rising income, work from home culture, shifting of offices to tier II and tier III cities and above all a firm government support make the Affordable housing sector the next sun shine industry.