Budget for low-cost housing

By: | Updated: February 24, 2015 3:19 PM

Include it under the definition of infrastructure

Sardar Patel Urban Housing Mission, affordable housing, budget 2015, Budget news, Union budget, Budget date, budget day, budget 2015 expectations, Arun Jaiteley, Narendra ModiWhat continues to be a challenge for the real estate sector is the uncertainty over the implementation of GST and the varying, high stamp duty across the country. (Reuters)

The government’s Sardar Patel Urban Housing Mission aims at “housing for all by 2022”—building 30 million affordable houses through the public-private partnership (PPP) model and provide interest subsidy and increased flow of resources to the housing sector. This policy is perhaps one of the government’s most important undertakings as there is a deep chasm in the demand and supply of affordable housing with the shortage expected to touch 38 million by 2030. At the same time, the National Housing Bank (NHB) Residex indicates that housing prices in major cities have doubled in the period of 2007 to 2014.

What continues to be a challenge for the real estate sector is the uncertainty over the implementation of GST and the varying, high stamp duty across the country.

Two of the most crucial challenges are ensuring that the industry has ready access to institutional funding to take on projects and ensuring quicker approvals. Whereas the former falls under the domain of the central government, the latter is a state subject. Coupled with easing of interest rates by RBI, if the finance minister and state governments deliver on the industry’s demands, we could witness a period of high growth for the industry. The budget also needs to address the issue of high and varying stamp-duty across states. Indirect taxes on construction materials contribute nearly 33% to the total construction costs, which impacts the final price to the customer. Hence, a roadmap for introduction of GST is very important for this budget.

The real estate sector, for long, has been demanding priority-lending status for affordable housing, the non-availability of which has placed a restriction on banks to provide funding for projects. This, coupled with lower margins and cumbersome procedures, has led to this segment being a virtual non-starter. In this budget, the finance minister should look at treating affordable housing as an activity for ‘public purpose’ and should include it under the definition of infrastructure. This will ensure that banks are mandated to increase funding towards affordable housing and real estate companies have access to a bigger pool of funds from NBFCs, external commercial borrowing (ECB) and insurance companies. It will also bring about more transparency and clarity which will go a long way in protecting consumer interests. The government should also look at opening the ECB route to all types of real estate rather than restricting it to only affordable housing. This would be in keeping with its decision to open up FDI in construction.

The total market size of the real estate construction sector stands at nearly $100 billion and is expected to touch $180 billion by 2020. In order to support the industry growth, a simpler and more transparent approval mechanism is needed. Lack of synchronisation among various departments and unsynchronised growth between residential development and infrastructure around it lead to delays and rise in construction costs. The real estate regulation landscape is plagued by a multiple window system in which the clearances are sought from multiple state-level authorities. Decades of archaic procedures and red-tapism have meant that real estate companies only operate in geographies where they are entrenched in the system. This system is a barrier for entry of newer players since approval procedures of various states are at variance with each other. The intrinsic opaqueness of this system has meant that consumer interests are put on the back-burner.

The Centre needs to find a way to influence the states towards a more consistent approval regime. Replacing this archaic system with a single-window mechanism will help to expedite the permissions.

Most Indian cities, especially tier II ones, lack basic infrastructure facilities like roads, electricity, while the existing infrastructure is often in a dilapidated state. This negatively impacts the real estate landscape. Lack of basic infrastructure becomes a hindrance for the developers who then have to also engage in providing these basic facilities in their township projects leading to cost escalations.

It is important that the homes are ready for future challenges and use technology that is energy efficient and sustainable Providing tax incentives will promote and encourage real estate companies to adopt new and sustainable technologies and will help developers pass on the cost benefit to consumers.

The author is managing director and CEO, Tata Housing

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