Finance Minister Arun Jaitley’s thrust on affordable housing in Union Budget 2017-18 has the potential to fulfill every Indian’s aspiration of owning a house. Industry players and watchers believe that granting infrastructure status to the segment will bring the housing dream within many home-seekers’ reach.
“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,” says Brotin Banerjee, CEO and MD, Tata Housing. “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.” The status will help increase resource allocation for the sector, catalysing housing supply and reducing the supply gap, says Banerjee, while calling for clarity on the definition of ‘affordable housing’.
Finance Minister Jaitley also announced that 1 crore houses will be built by 2019 for those living in ‘kutcha’ houses and the homeless. Allocation for Pradhan Mantri Awaas Yojana (PMAY) – Gramin has been enhanced too. “It has gone up from Rs 15,000 crore to Rs 23,000 crore in the rural areas and affordable housing will now finally be given infrastructure status. This is very significant,” says Anuj Puri, chairman and country head with property consultancy firm JLL India. “It will provide the vital budget housing segment with cheaper sources of finance including, but not restricted to, ECBs (external commercial borrowings). Also, re-financing of housing loans by NHBs (National Housing Bank) can give a leg up to the sector.” However, he also points out that the Budget missed out on giving any additional income tax incentives to first-time home buyers or providing higher tax savings on housing loans and house insurance premiums. “Nor did it raise house rent deduction limits. However, it did provide some direct tax relaxation to the lowest income earners, and gave some clarity on the designated beneficiaries under the Pradhan Mantri Awaas Yojana,” he adds.
The Union Budget has brought in more clarity on what constitutes affordable housing. The profit-linked income tax exemption for promoters of affordable housing projects will be granted on the basis of carpet area of 30 and 60 sq m instead of built-up area of the same dimensions. “The 30 sq m limit will only be applicable within the corporation limits of the four major metros. For fringe areas of these metros and all other cities, it will be 60 sq m on carpet area. This will effectively serve to increase the number of projects falling under this segment,” explains Puri.
This apart, developers of such housing projects stand to gain from relaxed deadline for completing their projects – it has gone up from three to five years. “Joint developers’ (JD) liability to pay capital gains tax will be in a year after the project is constructed. This will be beneficial for land owners and land prices can ease; this benefit can be passed on to home buyers,” adds Puri.
However, PwC’s Manish Agarwal, partner and leader, infrastructure, notes that more needs to be done in this space for benefits to trickle down to those who need them. “Infrastructure status for affordable housing is positive, but will need more measures for it to have an impact at the lowest end,” he says.