Budget 2017: Affordable housing and infrastructure status to add much needed impetus to drive real estate sector

Brotin Banerjee        Last Updated: February 14, 2017  | 16:12 IST
Budget 2017: Affordable housing and infrastructure status to add much needed impetus to drive real estate sector

When it comes to setting priorities, Housing For All has been the point of focus for the Modi government since it came to power in 2014. The Policies and programmes developed by the Ministry of Housing under the NDA government, have been supported by budgetary interventions, bringing in a refreshing transformation in the real estate sector. In the Union Budget 2017-18, Finance Minister Arun Jaitley emphasized upon the need for granting infrastructure status to affordable housing. This comes as a welcome move for both the consumers and the real estate industry alike. By giving the real estate sector infrastructure status, the government will allow companies to access capital and improve liquidity in the sector.

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.  Consumers will also benefit from the credit offtake, as they will have access to cheaper financing. This was partially enabled by banks, early this year following the government's demonetization drive.
The renewed focus on affordable housing and its eventual status as infrastructure will make developers more amenable to the proposition of investing in this sector.

Back to customer centricity

Focused institutional financing is set to attract many players, assuring the growth of not only the affordable housing segment, but of the real estate sector in its entirety. This will make affordable housing the core growth driver of the sector and at the same time, it should help in fulfilling the government's vision of 'Housing for All by 2020'.
Under affordable housing, the carpet area of 30-60 square meters will now be applicable as against built-up area of 30-60 square meters. This will attract and encourage  more consumers to buy a home in this  segment.

Real estate developers to gain

Credit off take will also benefit the developer - who will have access to cheaper funding.  Easy and dedicated access to institutional financing, higher limit on external commercial borrowings will attract more investments and assure sustained growth of affordable housing in India, making it the core driving segment for real estate. On the other hand, long term financing at lower rates will reduce costs of construction for developers allowing them to pass on benefits to consumers.

Among the other measures announced by the finance minister was a relaxation in the time companies can take to complete projects from three to five years and a reduction in the rate of tax such companies have to pay as MAT, or minimum alternate tax. This is a significant move as affordable housing projects are often executed as large townships which take many years to complete and developers may have said that three years is too short for them to take advantage of the tax benefit. Also, the 30 square metre and 60 square metre restriction now applies to the carpet area of a house thereby enabling developers to sell larger houses under this category.

Furthermore, a reduction in the holding period for computing long term capital gains from transfer of immovable property from 3 years to 2 years as well as the provision the allowing liability to pay capital gain tax in the year the project is completed, for Joint Development agreements will bring in more private participation in the sector.
 
While a lot still needs to be done, the budget this year is progressive and developmental for the sector and has instilled a sense of optimism within the real estate consumers and developers.  The economy is expected to see a positive shift in the overall purchasing sentiment.

Infrastructure status for affordable housing has been a long-standing requirement of the sector. This move will 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. This initiative by the government is expected to fuel the entire value chain of the stakeholders to perform their role as a significant part of the country's economy.

The writer is CEO and MD of Tata Housing

 

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