By Ravindra Sudhalkar
A spate of regulatory and policy changes, especially over the last
two years, has opened huge opportunities in the ‘Affordable Housing’
segment in India.
The first shot in the arm for affordable housing came in June 2015
when the Pradhan Mantri Awas Yojana (Urban) or PMAY (U) was launched by
Prime Minister Narendra Modi 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 Ministry of
Housing and Urban Affairs (MHA), the government so far has sanctioned
more than 65 lakh houses under PMAY-U, more than 35 lakh houses have
been grounded and more than 12 lakh houses have been occupied already.
Major policy reforms in Affordable Housing till date
The government has been tweaking policies and regulations, especially
for the last two years during 2017-18, to pique the interest of
developers and home buyers in ‘Affordable Housing’ with a larger goal of
achieving the set targets under the PMAY-U. Accordance of the
“Infrastructure status” in budget 2017 was a big step in this direction,
apart from initiatives such as the tax sops and incentives under the
credit linked subsidy scheme (CLSS), the tax exemption in profits from
such projects, goods and services tax (GST) implementation, and
enactment of the real estate regulatory authority (RERA) Act. In 2018
too, several more policy measures were announced, which further widened
the scope of affordable housing in urban areas.
RERA Act
The Real Estate Regulatory Authority (RERA) Act passed by the Parliament
on 1 May 2017 is considered among one of most landmark legislations till
date for the country’s real estate sector. The real estate sector is
estimated to contribute 11% of the GDP by 2020. The objective of the
RERA Act is to address grievances of buyers and to bring transparency
and accountability in this sector.
According to MHA, till 30 November 2018, 28 States and Union
Territories had notified rules under RERA and 21 had set up their Real
Estate Appellate Tribunal, either a regular one or interim. Till the
aforementioned date, 34,674 real estate projects and 26,882 real estate
agents have registered under RERA across the
country. (Source: http://mohua.gov.in/upload/uploadfiles/files/RERA_Status_Tracker%20(30-11-2018)%20(6).pdf )
GST lowered on PMAY projects
The Goods and Services Tax (GST) was implemented on 1 July 2017 to make
the entire taxation system consistent, transparent and less complicated
and to pass on the benefits to the customers by reducing the final
price. Even with GST, the total tax component calculated with other
applicable taxes such as stamp duty and registration fees constituted a
whopping 20% of the total property value, which led developers and
buyers to demand for a lower GST rate on housing projects.
In January 2018, the GST Council recommended rationalization of GST
rates on affordable and low-cost housing and revised down the rates to
8% on the total value of under-construction properties, which was 4
percentage points less than the earlier effective rate of 12%.
The finance ministry issued a clarification stating that no GST is
applicable on the sale of constructed property – ready-to-move-in flats
and buildings – where sale takes place after the issue of completion
certificate by the government authorities, thus infusing further clarity
for buyers about applicable taxes on affordable houses.
CLSS tweaks
The CLSS under PMAY was introduced in June 2015 to provide home loans to
customers from the economically weaker section (EWS) and lower income
group (LIG) categories, but the scheme was later extended to middle
income group (MIG) from January 2017.
In June 2018, the government decided to bring more beneficiaries
under the CLSS net and the union housing and urban affairs ministry
announced a 33% increase in the carpet area and tweaked the definition
of income groups eligible for subsidies under this scheme. According to
revised norms, the ministry of housing and urban affairs (HUA) enhanced
the carpet area of houses eligible for subsidy under for MIG to 1,722
square feet for MIG -I and 2,153 square feet for category MIG-II.
Earlier, the cap on carpet area was for MIG I and MIG II categories was
at 1,291 square feet and 1,614 square feet, respectively.
Households with annual income of Rs 6 lakh to Rs 12 lakh were put
under MIG-I category, while those earning Rs 12 lakh to Rs 18 lakh were
included under MIG-II segment. The government provides 4% interest
subsidy for Rs 9 lakh in the case of MIG home buyers and 3% interest
subsidy for Rs 12 lakh in the case of MIG-II home buyers. The government
also decided to extend CLSS for middle income group (MIG) till 31 March
2020, which was initially approved for implementation till March 2019.
According to National Housing Bank (NHB), the central nodal agency
for implementation of CLSS has disbursed Rs 3,270 crore subsidies to
more than 1.43 lakh households till November 2018 under CLSS. Recently
the government announced that around 2.75 lakh beneficiaries have
availed the subsidy scheme, with Gujarat topping the chart.
Untapped potential in Affordable Housing
The incentives and policies of the government are largely driving bulk
of the real estate development under affordable housing in the country.
A June 2018 report by Care ratings says the policy initiatives and
regulatory changes in 2017-18 have created huge opportunities in
affordable housing in India. “The potential demand in residential real
estate i.e. affordable housing offers 6-8 billion square feet
development opportunity in India over the next 3-4 years,” the report
says. Majority of this demand remains unmet.
The report adds that residential real estate sector started
witnessing some revival as more of affordable housing inventory has
started hitting the market during the second half of FY18. Houses in the
affordable category now account for a fifth of all residential sales in
India i.e. one in every 5 houses sold costs less than Rs 25 lakh.
However, the sluggishness in the lending market following the IL&FS
liquidity crisis has resulted in an 18% decrease in sales of affordable
homes in the second quarter of the current fiscal.
Way forward: Extension of subsidies and easing out
lending
Keeping the momentum alive in affordable housing will be the key to
achieve the targets under the PMAY-U. Availability of cheap finance has
been driving demand well in the segment, but the market has turned
sluggish lately due to the crisis in the non-banking finance (NBFC)
company sector.
A majority, almost one-third, of the lending needs of the affordable
housing segment is met by the NBFCs and HFCs. These companies until now
depended on term loan from banks, – 40 per cent of the financing come
through bank loans – debentures, commercial papers and securitisation to
raise finance. In the wake of a strong demand and drying up of credit
channels from capital markets in the current market scenario as well as
from banks post the IL&FS debacle, these companies are struggling to
keep the finance tap flowing for the affordable housing
sector. Regulatory support by means of allowing HFCs to take deposit
will ease out the credit crunch and be a big step in attaining the goal
of housing for all by 2022.
Extending the sops under CLSS till the goal of housing for all being
achieved and have a relook at the definitions of the beneficiaries,
considering the high cost of living in metropolitan areas, especially
Mumbai which accounts for 37% of total affordable housing demand in the
country can be some of the strong catalyst for increasing the demand in
the housing sector.
(The writer is the ED & CEO of Reliance Home
Finance)
Published in 99arces.com