Lifestyle

Budget 2017: Will it make affordable housing a reality for the end-user?

[ecis2016.org] With several recent relaxations provided for the affordable housing sector, will it encourage developers to build more units in this segment and kick-start consumption? We examine what the industry participants have to say

The Union Budget for 2017-18 announced several positive steps for the real estate and infrastructure sectors. This included an allocation of Rs 3,96,135 crores for the infrastructure sector, which is expected to give a much-needed impetus to the sector in the current situation. Various sops were also granted to the affordable housing segment, with the highlight being the granting of infrastructure status. However the moot question is: Will these measures mean that more affordable housing will be built and consumed?

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Benefits of the infrastructure status

While the housing industry has been demanding industry status for a long time, this budget accorded infrastructure status to the affordable housing segment. “This will enable low-cost finance and other operational benefits for the affordable housing sector, which were earlier enjoyed by the infrastructure sector alone,” explains Rajesh Prajapati, managing director of Prajapati Constructions Ltd.

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Currently, External Commercial Borrowings (ECBs) in case of affordable housing projects, are under the approval route of the Reserve Bank of India (RBI). “With the infrastructure status given to the affordable housing project, it could be eligible for ECB funding under the automatic route and a lower withholding tax of 5%. This will significantly reduce the lending costs to the developers of affordable housing projects,” says Dr Suresh Surana, founder, RSM Astute Consulting Group.

Benefits for housing loans

As per the budget speech, the National Housing Bank (NHB) will refinance individual housing loans of about Rs 20,000 crores in 2017-18. Post demonetisation, the banks have already started reducing their lending rates for housing. Additionally, interest subvention for housing loans have also been announced. On the whole, the infrastructure status to affordable housing, will increase certainty in buying behaviour. “Empowering PSU banks is also a move in the right direction, as the interest subvention on home loans will trigger higher subscription to cheaper loans. This, in turn, will lead to better real estate absorption,” says Amit Wadhwani, MD, Sai Estate Consultants.

New definition for affordable housing

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Today, affordable housing has different meanings, for various sections of the society. The finance minister’s budget, sought to clearly define what constitutes the affordable housing segment. The earlier built-up areas of 30 sq metres and 60 sq metres for affordable units in cities and suburbs, respectively, have now been modified to carpet areas. “This means that a developer can construct up to 25%-30% additional area and still get exemption under section 80IB of the Income Tax Act. The earlier sizes were too small and largely unviable for the low-income group (LIG) section of home buyers. Also, the limit of 25 kms from city boundary has been removed. Hence, there is now an opportunity for builders to cater to these segments and still roll out financially viable projects, very close to city limits,” says Prajapati.

With these various measures, experts envisage a boost to affordable housing construction and that the demand-supply balance will improve. “In a nutshell, the real estate sector has got a shot in the arm, considering all the aspects of the present money market, the growing demand and the new budget proposals. These will pave the way for the construction and consumption of more houses in this category,” maintains Ahammed MP, chairman of Malabar Group.

Income Tax provisions for affordable housing in Budget 2017

In this budget, three concessions in the scheme of income tax exemption for affordable housing under section 80-IBA, have been proposed:

  • Area of 30 and 60 sq metres to be counted as carpet area and not built-up area.
  • The limit of 30 sq metres will be applicable only in the four metropolitan city limits, while the limit of 60 sq metres will apply to the rest of the country.
  • The period for completion has been extended from 3 years to 5 years.

Source: https://ecis2016.org/.
Copyright belongs to: ecis2016.org

Source: https://ecis2016.org
Category: Lifestyle

Debora Berti

Università degli Studi di Firenze, IT

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