#Budget2017: Affordable Housing To Get Infrastructure Status
In his Union Budget 2017-18 Speech, Finance Minister Arun Jaitley has answered one of the long-pending demand of the real estate sector. Jaitley granted infrastructure status to affordable housing. An infrastructure status will act as a substance to boost Prime Minister Narendra Modi's mission of Housing for All by 2022.
Sunil Mishra, Chief Business Officer (Primary Sales) at PropTiger.com, shares his view on the Union Budget 2017-18.
“This is a huge move from the government to meet its target of Housing for All. All tax benefits which are there for infrastructure sector will be applicable to affordable housing sector (including lower finance rates) . This will inculcate greater corporate governance. Combined with the December 31 announcement of PM Modi on rebate on interest on home loans for this sector, sales of affordable housing should be very positively impacted.”
Deepak Kapoor, President CREDAI-Western U.P. & Director, Gulshan Homz, points out, “Announcement of infra status for the affordable housing segment in the Budget will open up new avenues for the developers planning to offer budget housing units and will make it easy and comfortable for them to get finance from lending agencies. Affordable housing developers will now be eligible for various government incentives and subsidies, where this infra status could also mean that the government might come out with land parcels for such development in future. With the basic slab of income tax now reduced to half the effect, people will have access to higher disposable income which can now be utilised for saving and investment purposes, where real estate will look attractive. Also, to promote foreign investment in the country, FDI is planned to be liberalised further.”
After Jaitley presented the Union Budget 2017-18, Prime Minister Narendra Modi said the housing sector stood to gain immensely from the it.
It is estimated that the status will certainly reduce costs for real estate developers and attract more investors. Also, the developer will now have access to cheaper funding. The measure will expand resource allocation for the real estate sector. Therefore, it will turn up housing supply and reduce the demand which was being accumulated for quite a long time.
Realty experts point out that a middle-class salaried person living in a metropolitan city spends nearly 30-35 per cent of his income on paying rent. The scenario changed when the property market experienced a robust growth towards the beginning of 2003. As the economy boomed, the purchasing power also increased and homebuyers started opting for EMIs over house rent. But, the global economic slowdown in 2008 hit the Indian real estate market severely. This created a negative impact among homebuyers, which happened because developers often missed their deadlines or short-changed the gullible buyers. So, with the infrastructure status to the affordable housing will certainly change the entire outlook of real estate sector.
Also read: Real Estate Sector Eyes Industry Status, What's In It For A Buyer?
Why real estate needs the industry status?
Being the leading contributor to the country's GDP and one of the highest employment generators in the country, the real estate sector is in dire need of a total overhaul. Globally, each sector has its own sets of rules and regulations. But due to the absence of industry status earlier, the realty sector was highly unregulated. With the new status, the sector can have proper planning and a strong organising body.
Also read: Slowdown In Real Estate Temporary But Reforms Hold The Key To Revival
Changes to occur after getting industry status
The developers can win back the lost confidence of buyers. Consumers who are afraid of buying from fraudulent builders can be able to search for more better option and choose for the best while buying their dream home. From investors' perspective, after so much of uncertainties, they still prefer investing in real estate as this is the safest option. This will further boost the investor sentiment and add growth to the real estate sector.
Now, the government would need to define affordable housing or low-cost housing clearly. It would need to ensure that funds from these projects can't be taken out before completion of the project.
The realty sector witnessed many things in the field of building construction and other project developments. According to Budget 2017-18, one crore rural houses will be created by 2019. So, certainly, the new status will boost this additional measure.
How will it impact home prices?
Market experts welcome the announcement of new infrastructure status to affordable housing and believes that it will allow real estate developers to raise loans at a cheaper rate. This will directly benefit the first-time home buyers, who are looking for houses at affordable rates. The infrastructure status opened larger access to funds. As banks will be willing to offer more in the affordable housing segment.
How is it impacting the high borrowing cost?
Now, banks will have to change the way they lend to real estate developers as well as small home loan borrowers. Finance minister, Arun Jaitley in the Union Budget 2017-18, also announced that National Housing Bank will refinance individual loans worth Rs 20,000 crore in 2017-18.
Non-Banking Finance Company (NBFC) registered with Reserve Bank of India (RBI) became key capital providers to developers, mostly those who don't have easy access to banks and large private equity (PE) funds. Now, these small-time builders are left with no choice and go to NBFCs for loans, which are more expensive than bank finance. So, if a developer borrows at a higher cost then ultimately it gets passed on to the consumers. So, after getting the infrastructure status in the Union Budget 2017-18 can help developers (both big and small) approach banks and NBFCs for a fair price deal so that the end-users can buy a house in a decent amount. Pratik K Mehta, Managing Director, Unishire, shares his views on the same, "Being accepted as an industry can advance the accessibility of better financing options for the sector that at present is forced to avail funds through NBFCs at much higher interest rates."
"Proper channelisation of work will help to organise the real estate sector and enable developers to borrow at much lower rates, thereby allowing them to deliver lower cost housing," adds Vikash Bhagat of Airwil Infra.
There are millions of Indian citizens who are homeless and are struggling each day on how to arrange capital for their home loans via EMIs and elevated interest rates. The lost faith in developers made them restricted on buying homes. With the announcement of getting an infrastructure status, the fluctuation of interest rates (which is on the rise) is expected to come down. The sudden and ongoing escalating of interest rates is because of the sector's irregularities and lack of proper guidelines. Buyers are setting a back for buying property through home loans because of the higher interest rate. "A good flow of offers coupled with passing benefits of lower interest rates could help the real estate market not only steady and stabilise but also revive by over 15 per cent," points out Bhagat.
With RERA, it is expected to ensure fast property settlement, but for a methodical growth to boost both domestic and foreign investment, the infrastructure status for affordable housing will act as a catalyst to achieve the supreme stability in the sector. Real estate developers, too, have been coming down hard on their own peers in the sector recommending the consumers opt for thorough background checks before selecting a broker or a builder.
Prior to Union Budget 2017-18, what market experts believed and expected
"The irony of this sector is that despite being the biggest and the most crucial domain of contribution, the sector doesn't get to enjoy industry status," Rajesh Goyal, vice-president CREDAI-Western UP & MD of RG Group. Vikash Bhagat, Director, Airwil Infra, points out "the real estate sector needs to be accorded the industry status in order to assure proper channelisation of work and to ease the way of doing business."
Dhiraj Jain, Director, Mahagun Group, too, laments: "Industry status has been a long pending demand for the real estate sector. There can be multiple reasons attributed to it. The unorganised nature of the country's real estate needs to be organised and brought under one central agency." Jain further mentioned, "Although RERA will solve a large number of problems, other issues can be ironed out if we get the industry status. Under the current government, initiatives are aplenty and hopes can be bestowed that the much-needed industry status would be given sooner than later in order to revive the sector and prevent it from facing a slump."
"A lot of cases have come forward where the same piece of land has been compensated more than once. This adds to the cost of the project, thereby delaying the project. These kinds of situations can be avoided if uniformity is brought into land acquisition laws," says Deepak Kapoor, President CREDAI-Western UP & director, Gulshan Homz. He says such clarity can boost the sector by another 15-20 per cent. The sector that is the end-user of over 30 industries, is unable to grow and flourish like other industries. The primary reason for this is the absence of an industry status, which is a long-pending demand.
"The irony of this sector is that despite being the biggest and the most crucial domain of contribution, the sector doesn't enjoy the industry status," Rajesh Goyal, Vice-President CREDAI-Western UP & MD of RG Group. He further adds, "Newcomers entering the market are breaking new grounds and setting benchmarks for experienced players. However, granting industry status to the real estate sector is a long pending demand, which is much required to check the gross irregularities that persist in this sector."