Housing for All by 2022" has been a refrain of the Modi government. Small wonder, then, that the government announced a number of initiatives to boost the real estate sector. Finance Minister Arun Jaitley has given "infrastructure status" to affordable housing, a long standing demand of developers and will translate into cheaper loans for them. Industry players, who have been taking credit at a steep 13-16 per cent, term the change significant as it will substantially cut their cost of funds for the vital budget housing segment with re-financing options by the National Housing Bank.
Rajeev Talwar, CEO of DLF Limited, India's largest realty company, says that the 'infrastructure status' will give them access to capital at far lower interest rates. "Other incentives like change in measurement methodology from built up area to carpet area and extension of affordable housing scheme completion to five years from three years will enhance demand," says Talwar. Similarly, Purvankara Projects and Shapoorji Pallonji said they will launch new affordable housing schemes.
Norms under affordable housing have been changed to carpet area - and not built-up - of 30 square metres (sqm) in the four metropolitan cities and 60 sqm in other cities. Besides attracting more builders, the buyers will benefit from more spacious homes. "The relaxation in measurement will give an additional 25-30 per cent area to such houses in urban settlements, which is a great value proposition to propel demand. It will encourage home buyers and further boost participation from the private players," says Anshuman Magazine, Chairman, India and South East Asia, CBRE, a multinational consultancy.
Hit hard by demonetisation, the real estate sector also gets a push from a higher Budget outlay of Rs 23,000 crore under the Pradhan Mantri Awas Yojna, a 53 per cent increase over the previous year. After the 3-4 per cent interest subvention announced by the Prime Minister for low cost housing on December 31, the government is targeting one crore houses in rural India by 2019.
Real estate sector has huge inventories, especially in housing, driven by years of low demand. In the largest Delhi-NCR market alone, there is an inventory overhang of over 2,50,000 unsold flats, denting developer sentiments. A big relief to developers will come from the budgetary proposal of allowing the notional rental on unsold stock to be assessed only after one year of completion, which will bring down their inventory and push sales.
Meanwhile, the government plans to give a big push to infrastructure which could be good news for the real estate sector as well. A whopping Rs 3,96,135 crore has been allocated for infra projects in the 2017/18 Budget. Now, the correlation between a boost to infrastructure and real estate growth is a well established fact and the government has already made public its intention to provide houses to all in the next five years.
While allocation of Rs 1000 crore for a new Credit Linked Subsidy Scheme for middle income groups will also revive demand, there are more incentives in the Budget for the real estate sector. The duration of holding to avail long term capital gains benefits is being reduced to two years from the existing three years. It will lead to faster sales in the secondary market and increase tax compliance amongst the real estate stakeholders. Also, the base year for indexation is proposed to be shifted from 1.4.1981 to 1.4.2001 for all classes of assets including immovable property. "The shift to the base year for indexation will help reduce capital gains liability on the customers. It will encourage faster mobility of assets as the tax liability on capital gain will come down substantially," says J.C. Sharma, Vice-Chairman & MD of Bengaluru-based Sobha Limited.
The fresh proposals in the Budget are likely to encourage leading real estate players to turn their attention to affordable housing. "This Budget has brought us a step closer in achieving the mission of providing housing for all. Implementation of these schemes will be essential for its success. Clarity on the definition of 'affordable housing' will be useful and beneficial for players like Tata Housing as a pan-India developer, which is currently developing more than 40 million square feet of affordable housing," says Brotin Banerjee, MD & CEO, Tata Housing.
The government has also proposed changes in the taxation of Joint Development Agreement to allow more land owners to partner with developers for lowering project costs. Besides, the renewed focus on new and existing roads as well as expanding coastal connectivity will also boost the real estate sector.
Also, abolishing the Foreign Investment Promotion Board will make it easier to get foreign funding through the automatic route. Whats more, a boost to real estate can also boost cement, steel and construction industries, spurring growth along with employment.~