Affordable Housing: The rise and current scenario in India

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.

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: )

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)

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