Affordable housing to get a boost by recent moves by government

Published: February 20, 2020 12:08 PM

Despite affordable housing being the buzz work in the real estate sector for the last few years, it still accounts for substantial chunk of unsold inventory.

affordable housing, real estate, budget 2020, budget 2020 India, Finance Minister, home buying, realty AIF, stress fundWith affordable housing being its focus, the government continued some measures for the segment in the previous year’s budget.

In the run up to the Budget 2020, which was the first full budget of Modi 2.0, the real estate had great expectations. With the industry facing one of the steepest challenges in the last two decades amid falling sales as well as new launches, the expectations were not entirely misplaced either.

On the contrary, from a government perspective, meeting the expectations was always a daunting task considering the government’s stressed revenue and fiscal deficit situation. What made the job even tougher was that just a couple of months ago, it announced some measures including setting up of a realty AIF or a stress fund as it is generally referred in common parlance, to the tune of Rs 25,000 crore for kick-starting stalled projects. The corporate tax reduction that the government announced in the month of September-October also to an extent benefitted the sector. Accordingly, the government decided to walk tightrope and most of the demand of the sector remained unmet.

With affordable housing being its focus, the government continued some measures for the segment in the previous year’s budget. Noticeable among it was July last year’s announcement, wherein the Centre increased the tax deduction limit on the home loan interest component to Rs 3.5 lakh from Rs 2 lakh for housing units worth up to Rs 45 lakh so as to provide an impetus to a sector that has been reeling under pressure amid a demand slowdown and a severe liquidity crunch. In a separate development, the GST council too had reduced GST rates on affordable housing to 1% with the same intent.

The impetus has worked as well. According to a recent report of PropTiger.com, 56% of all homes that were sold in the October-December 2019 period in the nine major residential markets in India were priced under Rs 45 lakh. Little wonder, the affordable housing has a bigger share in new launches as well. Around 52% of new project launches during the October-December period were in this segment.

However, not everything is hunky dory. Despite the government’s impetus, the affordable housing has its own share of challenges. Despite affordable housing being the buzz work in the real estate sector for the last few years, it still accounts for substantial chunk of unsold inventory. At the end of 2019, unsold stock stood at 7.75 lakh units, of which close to 3.90 lakh units were affordable homes. While the unsold affordable units have declined by around 14% as compared to the corresponding figure at the end of 2018, where developers were sitting on an unsold stock consisting of 452,850 affordable homes, the decline has primarily been because of the lower number of launches.

Needless to say, the segment needs support from the government. With little elbow room on fiscal front, the government rightly extended the benefits for affordable housing by another year. Moreover, in the recently-concluded budget, the Hon’ble Finance Minister has announced several measures, including lowering of income tax rate sans deduction. This is likely to help revive the overall consumer sentiment, which would encourage buyers to buy affordable homes. The impetus on the infrastructure sector also augurs well for the sector as it may result in the revival of demand, especially in tier II & III cities.

(By Mani Rangarajan, Group COO, Housing.com, Makaan.com and Proptiger.com)

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