Anytime is Good Time for First Time Home Buyers Date: 7th June, 2018

Ravindra Sudhalkar

Executive Director and CEO
Reliance Home Finance
Correction in real estate prices, formation of real estate regulatory authority and tax sops have made investing in a house more pocket-friendly and safer than ever before

To own your dream home just became sweeter with the government’s extended subsidy to bigger homes under the government schemes. But that’s not all. Infact the government’s thrust to boost the Indian housing and the real estate sector over the last two years has been witnessing a sea change with the implementation of Real Estate Regulation & Development Act (RERA) and Goods & Service Tax (GST), all of which is expected to improve transparency and build in confidence among homebuyers.

In the last 3 to 5 years the residential market continues to see a time correction and lately the market has also seen a price correction up to 20 per cent in the recent time auguring well for home buyers, especially first-time buyers.

Consumers will bear the fruits of RERA

The government has affected various significant policy changes in the housing sector for meeting its goal of ‘Housing for All’ by 2022. Among the most significant one was RERA, which is expected to bring in price corrections of home rates in areas with a large stock of completed projects, especially in the premium and luxury segment. RERA is also expected to compel a time correction and ensure the consumers got what they wanted within the timeline promised by the builders.

Post RERA, the builders and real estate companies are getting more serious about implementing consumer protection initiatives than ever before. Hence, we see an uptick in RERA-projects this year.

Many state governments are also implementing consumer-friendly changes both in letter and spirit. Some states like Delhi, Jharkhand, Rajasthan and Haryana have begun to offer partial rebates on stamp duty to women.

Similarly state governments are also implementing policy framework to boost affordable housing -- Rajasthan, Gujarat, and Uttar Pradesh were among the first ones to come up with a model framework for affordable housing. Meanwhile the Maharashtra government’s move to bring Maharashtra Housing Area Development Authority (MHADA) redevelopment projects and Slum Rehabilitation Authority (SRA) schemes under RERA is expected to benefit the mass population of Mumbai which lives in slums and people whose properties have either gone or are to be set for redevelopment. It is estimated that 41% of people in Mumbai live in slums and 85% of all constructions in the city involve redevelopment.

Opportunity to invest in Affordable housing projects

Measures like accordance of infrastructure status to affordable housing and various tax sops being offered to both developers and buyers is expected to boost the number of housing projects in this segment. The new focus and impetus on low-cost and affordable housing projects will translate into home buyers being able to choose and invest in properties that best suit their pockets.

Recently, the government announced cut in GST rates from 12 per cent to 8 per cent for first-time home buyers for houses purchased using the credit-linked subsidy scheme (CLSS) under Pradhan Mantri Awas Yojna.

The rebate on GST rate is applicable to first-time home buyers with a maximum annual family income of Rs 18 lakhs. This means a homebuyer with a family income of up to Rs 18 lakh per annum will be eligible for a benefit of up to Rs 2.7 lakh under CLSS. However, home buyers who don’t fall under CLSS would have to pay a GST of 12%. The GST rebate will also be applicable to low-cost housing projects with infrastructure status, where the maximum carpet area is 646 sq ft. The condition of “first-time home buyer” is not applicable here.

Last month, the Housing and Urban Affairs Ministry also enhanced the carpet area of houses eligible for subsidy under CLSS for middle income group (MIG) to 160 square meters for MIG-I and 200 square meters for MIG-II. Earlier, the cap on carpet area for MIG-I and MIG-II categories was 120 square meters and 150 square meters, respectively. Households with annual income of Rs 6 lakh to Rs 12 lakh have been put under MIG-I category, while those earning over Rs 12 lakh up to Rs 18 lakh fall under MIG-II segment. The government will provide a 4% interest subsidy for Rs 9 lakh in the case of MIG-I home buyers and 3% interest subsidy for Rs 12 lakh in the case of MIG-II home buyers.

The credit-linked subsidy scheme for economically weaker section, lower and mid income group, along with GST rebate, consumer-friendly policies under RERA, and favourable macro-economic conditions will generally create a positive environment where a home buyer doesn’t have to sit at the fence and wait for right opportunities for investing in a house. Now, a larger section of the population not only will be able to realise their dreams of owning their own homes, but they are also much better placed to take a decision about a property investment guided by their own terms and time convenience.