Employment opportunities and greater affordability vital for success of PMAY
The government’s recent initiatives such as the Pradhan Mantri Awas Yojana (PMAY) will provide limited benefits to MIG housing and more to LIG housing. Making homes more affordable would be a greater catalyst for increasing medium-term demand for housing and mortgages, says an analysis by Kotak Institutional Equities.
In order to capture such demand and incentives, developers need to offer compact products at lower ticket sizes and housing finance companies need to focus on loans of below Rs 20 lakh.
The credit-linked subsidy scheme (CLSS) under PMAY will help reduce the IRR (internal rate of return) on home loans by about 100 bps or imply 2-10% discount on purchase of new property, higher benefit at lower ticket sizes. The scheme alone may not be a catalyst for making a purchase decision; better employment opportunities and improving affordability will have to play a greater role, it says.
CLSS has been extended to include the middle class although benefits are low at the higher-end. The fine print of the CLSS has provided an income cap of Rs 18 lakh for borrowers to qualify under the CLSS in the MIG segment. As per the current Better employment opportunities and making homes cheaper will play a greater role in promoting affordable housing. scheme for the LIG segment, borrowers of home loans up to Rs 6 lakh are eligible for 6.5% interest subsidy for 15 years. The MIG segment will be included in this scheme from financial year 2018 to provide 4% subsidy for loans of up to Rs 9 lakh and 3% for loans of up to Rs 12 lakh.
Interest subsidy is credited upfront to the loan account of beneficiaries through lending institutions (banks/hfcs) resulting in reduced effective loan liability. The calculated subsidy for loans across categories is Rs 2.3 lakh. This benefit is only available to first-time buyers. The CLSS for the MIG saves around 5-8% on Rs 3-4 lakh /unit home.
With increasing ticket size, the impact of such subsidy reduces.while household income cap of Rs 18 lakh per annum can allow buyers to purchase units of Rs 70 lakh to Rs 90 lakh, the benefits of the subsidy are not much, limited to just about 3%.
Most units offered by listed developers in metros are above Rs 50 lakh and hence the benefits of such schemes are limited. More developers are expected to launch homes of up to 60 sq m carpet area in the financial year 2018 to gain benefits under 80-IBA, which could increase volumes; but value contribution will be limited considering the share of such units to the overall area under construction. The amount of new capital available for global real estate investment in 2017 is estimated at $435 billion, according to Cushman & Wakefield’s report titled The Great Wall of Money, which tracks the amount of newlyraised capital, including debt and equity, targeting real estate at a global level.
The report states that the total global wall of money in 2017 has fallen by 2% compared to the 2016 peak of $ 443 billion, but is the second highest figure recorded since 2009. Of the $435bn figure noted for 2017, capital targeting EMEA shrunk 9% in US dollar terms to $130bn, whilst the Americas grew by 2% to $173bn and Asia Pacific posted a marginal increase to $132bn.
In Asia Pacific which accounts for 30% of the global volume, China, Japan, Australia and Hong Kong ranked in the top 10 target investment destinations globally, with Singapore and India a few spots behind at number 12 and number 15 respectively.
The growing investment interest in Asia Pacific reflects the maturity and growth of opportunities across the region as well as the prospects for attractive returns.