Sops, Cheap Loans to Make Affordable Housing a Reality
Budget proposals have given the financial underpinning to deliver on PM’s poll promise
Mumbai: India’s long-pending social objective of affordable mass housing appears to be finally doing just that: Getting millions of its wage earners on to the property ladder for the first time.
‘Housing for All’ was the cornerstone of PMNarendra Modi’s economic well-being plank announced in 2015, underscoring the importance of home ownership in enhancing social security in the South Asian nation that plans to build about 20 million homes in the next 5 years.
The stated objective now has the financial underpinnings to help turn the slogan into reality: Soft loans, likely interest-payment waivers, access to institutional capital for cheaper homes, and tax-breaks are levers experts believe will match costs and wages.
“The govt’s initiatives toward ensuring progress for the ‘ Housing For All’ and Pradhan Mantri Awas Yojna (PMAY) plans have ensured convergence of home loan EMIs (equated monthly instalments) and rent cheques, which will be a big trigger to boost demand. The infrastructure status tag will also ensure greater money flow and ensure home loan rates remain affordable over an extended period of time,” said Gagan Banga, MD at Indiabulls Housing Finance.
Budget 2017 offered infrastructure
status to the business, supplementing earlier state proposals to provide interest subvention. Interest subvention under PMAY will be added benefits for such homebuyers, many of whom make less than the country’s average per head 2016 earnings of about $6,600.
Budget proposal to accord infrastructure status would encourage companies to build more such homes, boosting supply and keeping prices in check.
“Giving ‘infrastructure’ status to affordable housing is an extremely positive step. It will help in reducing the cost of borrowing for real estate developers, provide easier access to finance and spur investments. This will go a long way in fulfilling the objective of ‘Housing for All’ by 2022. Also, the refinancing of individual housing loans of .₹ 20,000 crore by the National Housing Bank (NHB) will help low-income borrowers and housing finance companies,” said Renu Sud Karnad, managing director, HDFC, the country’s biggest mortgage lender.
Also, the proposal to offer tax incentives for affordable housing based on usable carpet area — and not built-up space —will help buyers get better-sized homes, bringing more projects under this category. On New Year’s Eve, the prime minister announced the government’s decision to provide interest subvention of 3% and 4% for loans of up to .₹ 12 lakh and .₹ 9 lakh, respectively, under PMAY.
This is estimated to cover a significant part of home loans extended by most mortgage companies and boost low-income housing in peripheral areas of urban localities across the country.
Earlier, under the prime minister's vision of ‘Housing For All by 2022’, the government had already announced various benefits, including interest subsidy of up to .₹ 2.2 lakh for homebuyers in this segment.
“Tax benefits under Section 80C for home loan principal repayment, Section 24 applicable to interest payment and Section 80EE amounts to .₹ 4 lakh annually. This, when compared to usual rentals yields of 3%, shows buying a house in affordable or low-cost category is expected to be preferred instead of renting one,” said a tax consultant.
The Union Budget 2017 has also extended the project duration to five years from three years for availing tax-breaks, an incentive expected to boost supplies.