[ecis2016.org] With the union budget just around the corner, we take a look at the impact of measures announced in the last budget for the affordable housing segment
In the 2016-17 union budget, the government introduced several measures to boost affordable housing. Among the significant ones, it provided 100% tax exemption on profits, for developers building homes up to 30 sq meters in the four metros and up to 60 sq meters in other cities. The government also announced an additional interest exemption of Rs 50,000 per annum, for loans up to Rs 35 lakhs, for first-time home buyers where the cost of the house was below Rs 50 lakhs.
One year down the line, there has been no significant change in the scenario. Nevertheless, these measures have definitely spurred interest in the affordable housing sector. The developer community is not only ready to enter this segment but also talk about it more openly, maintains Anuj Puri, chairman and country head, JLL India.
“In the face of slowing sales in the luxury and premium categories, affordable housing promises to open up a new revenue source. Across India, more developers, like Mahindra Lifespaces, Tata Housing, Shapoorji Pallonji, Assetz Property, Puravankara Projects, Maple Group, VBHC Value Homes and EMGEE Group, are enthusiastic about entering or expanding their affordable housing portfolios. Even private equity players are willing to fund such projects,” Puri points out.
Disconnect between the centre and the states affecting affordable housing
However, to convert this interest into action, many more measures may be required. Lack of supportive state policies, poor infrastructure in potential locations, delays in approvals and lack of cheap finance, are some of the major barriers listed by industry professionals.
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“Real estate in India is a state subject. Hence, the policies and incentives introduced by the central government, have to be backed up with suitable policies by the state governments,” explains Rohit Poddar, managing director, Poddar Housing & Development Ltd. “There has been a boom in creating affordable housing stock, with enabling policies in states like Rajasthan, Madhya Pradesh, Gujarat, Telangana and Uttar Pradesh. However, others including Maharashtra, are yet to formulate supportive policies and whenever that happens, affordable housing supply will ensue,” he says.
The development of infrastructure is equally essential, adds Ajay Jain, managing director – investment banking and head – real estate advisory, Centrum Capital Limited. “It is important to build infrastructure and improve connectivity to the peripheral areas of cities, especially the metros. Developers taking up affordable housing projects on the outskirts of metro cities, are facing several challenges, vis-à-vis attracting buyers to places where there is no basic infrastructure, non-availability of cheap finance to make projects viable, high land costs, likely restrictions in the Real Estate Regulatory Act on pre-launch sales until approvals are in place and delays in obtaining permissions,” he complains.
Policy challenges in the road to Housing for All
Mudhit Gupta, chairman and managing director, EMGEE Group, recalls that he had to encounter similar challenges.
“It took us six months to locate the ideal land for our project at the right price and also with rail connectivity. Secondly, the approval process is still very slow, which leads to cost escalation and project delays. Thirdly, obtaining funding for the affordable segment is extremely difficult,” says Gupta, whose company is planning to launch its project Grahasthi, in Mumbai’s suburb of Neral, in March/April 2017.
The caveat that the developers must complete the project within three years, to avail of the tax exemption, the Minimum Alternate Tax of 18% on the book profit, low density norms in some states etc., are other deterrents that developers list. Implementing the area limit of 30/60 sq meters, will be a challenge for the authorities as well, as many builders in the past have amalgamated two or three small flats and sold them as one big unit later.
Some also opine that the additional Rs 50,000 interest exemption, will only benefit buyers in tier-2 and tier-3 cities, as the cost of housing units has gone beyond Rs 50 lakhs in many metros. “In urban India, we have a shortage of approximately 19 million units in the EWS and LIG sectors and this number is increasing. For the ‘Housing for All by 2022’ vision to be realised, a lot more needs to be done by the government,” Poddar insists. The big question now is: Will the gaps in the policies and practices be bridged in the forthcoming budget?
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