Divorced from Realty
The government has retained its focus on affordable housing. Now it needs to free credit lines and concentrate on growth to boost demand
The Journey So Far
To realise the goal of ‘Housing for All’ and increase the supply of affordable homes, developers of such projects have been given a tax holiday on profits. For consumers, interest payments up to Rs 2 lakh on housing loans for self-occupied properties are allowed as tax deductions under Section 24B of the Income Tax Act. In her July budget, finance minister Nirmala Sitharaman allowed a further deduction of up to Rs 1,50,000 on interest paid on loans taken up to March 31, 2020, for houses valued up to Rs 45 lakh. In all, those purchasing affordable homes are eligible for deductions up to Rs 3.5 lakh. On August 23, Sitharaman announced a financial package aimed at improving market sentiment, boosting demand and making credit more freely available The government has frontloaded the recapitalisation of public sector banks with Rs 70,000 crore, which could reopen the NBFC fund channel, improve credit supply and boost demand for homes The government has also moved to directly link the repo rate to home loan rates to ensure better transmission of the RBI’s rate cuts
Is It Enough?
The $120 billion Indian real estate sector is in the midst of its worst slowdown in a decade. A July 2019 study by realty consultant Knight Frank India said unsold home inventories in eight key cities—Mumbai, the National Capital Region, Bengaluru, Chennai, Hyderabad, Ahmedabad, Pune and Kolkata—stood at 450,263 units in the first half of calendar year 2019. Although launches of new homes were up 21 per cent in these cities (rising to 111,155 units), sales were just 4 per cent higher than in the first half of 2018. Therefore, the sector needs drastic intervention to ensure a revival. The budgetary thrust on affordable housing has helped a bit; 85 per cent of new launches are estimated to be in the affordable segment, with less than 60 metres of carpet area. But overall buyer sentiment is lacklustre; consumers seem to be delaying purchase decisions in the hope that prices will come down and that the government will announce more sops.
The Unfinished Agenda
Economic revival is imperative to growth in the sector. The economy needs to grow at over 8 per cent for any meaningful change in buyer sentiment.
The focus needs to be on job creation, because only that can improve discretionary spending
Although GST has been reduced to 5 per cent for homes under construction and to 1 per cent in the affordable housing segment, input cost of materials like cement is high at 28 per cent. That needs to be reduced to 18 per cent.
The ease and cost of doing business must improve. High costs affect the profitability of a business where the margins are 10-15 per cent, say developers.
The business community is demanding that corporate tax be lowered from the current 33 per cent to 25 per cent to help developers address market uncertainties