The Government’s decision to implement key reforms to encourage domestic entrepreneurship, bolster infrastructure, strengthen rural income, attract FDI and enhance the ease of doing business have cumulatively augured well for the economy and the housing finance sector in particular. We anticipate a continuity of this approach for the forthcoming Union Budget 2017 to focus on the development process and fiscal prudence.
The two significant domestic economic events that marked the year are the recent demonetisation move and the GST bill. There have been considerable discussions on the impact and efficacy of the currency purge initiative and the government is already taking efforts to focus on benefiting the low and middle segment and the 2017 Budget might see a number of welfare measures and schemes which could see a surge in social spending expenditures.
On the back of government’s relentless focus on stimulating economic growth, the Housing Finance sector in India is looking at exciting times ahead. While the building blocks are already in place with Housing for All by 2022 and Make in India initiatives, some growth-oriented efforts that will enable the housing finance segment to unlock its tremendous potential include:
1) Allocation of more funds under the Rural Housing Scheme with facility for onward lending: Rural Housing Finance has been successful in promoting rural housing to the targeted segment, hence it is desirable that funding under this scheme continues with a larger corpus; and allocation is permitted upfront for enabling onward lending instead of a refinance. This will enable housing finance companies to aggressively go into the market with a pre-defined strategy and minimise the risk of interest rate fluctuations. A mechanism could be put in place including a specific timeframe during which these funds need to be utilised.
2) Increase in Indirect Priority Sector Lending limit: Currently, under the indirect priority sector lending norms banks can lend to HFC’s for onward lending for home loans up to Rs 10 lacs only, whereas the capping is Rs 25 lacs for direct lending by banks. These limits may be revised upwards and capping for onward lending by HFC may also be brought at par with the securitization/ assignment limits.
3) Under the CLSS scheme of Pradhan Mantri Awas Yojna, the subsidy is given on Rs 6 lacs of loan without any distinction of city category and accordingly the cost of construction/ property prices or cost of living. It is suggested that the subsidy may be linked to city categories to benefit appropriately the target segment.
a) Existing tax reliefs under Section 24 and section 80EE to continue
b) Currently under Section 24, in the case where the possession of the residential house has not been received (i.e. under construction property), the rebate is given in the year when the possession has been given. It is suggested that in the affordable segment particularly in Lower and middle-income segment the rebate may be available in the year in which the interest is incurred instead of accumulating it. This would improve the cash flows of the low-income segment groups who are also burdened with additional rent costs during the construction phase.
c) Under Section 80C principal repayment of housing loan along with other deductions is allowed up to Rs 1.50 lakh. It is suggested that that principal repayment limit may be allowed over and above the other investment deduction in affordable segment. This will give a boost to the market in the affordable housing segment. This additional benefit can be extended to first-time home buyers, under a declaration, in the affordable segment.
d) Section 36(1)(viii) of Income Tax Act that currently provides a deduction of 20% in profits can be aligned to incentivise lending institutions by moving the limits upward particularly for affordable segment; including profits on loans given to developers of affordable segment for the purpose of deduction under the section that will help in boosting funds to this segment to improve on supply side. Extending the same on profits earned on loans given to MSMEs to promote affordable and adequate financing also contributes to the vision of “Make in India” initiative.
5) The other aspect of benefit measures can take the form of incentives for digital payments, given the trend of incentivising cashless transactions. We are likely to expect a number of sops encouraging e-payments in the 2017 budget.”
(This article has been written by Mr Harshil Mehta. He is the CEO, DHFL)