Owning a home is everyone’s dream, irrespective of affordability and cost. Some have achieved this and for many others it remains a dream.
There is severe shortage of housing, especially in urban areas in the country. Developers tend to invest in and develop big housing projects as that brings in more money and profits. Also, catering to the low income groups has its own challenges in terms of limited credit history of buyers, irregular cash flows and income of such buyers, and the impact of inflation and interest revisions on these buyers.
However, affordable housing is a segment of huge opportunity in terms of market size. With increasing urbanisation, it is estimated that by 2030, as many as 600 million people will call urban India their home - a growth of 59 per cent over 2011. This will definitely create an undue amount of pressure on urban infrastructure, especially housing.
In the light of these facts, affordable housing is a notion whose time has come.
Unless we think seriously about affordable housing, millions will go homeless in urban India and a clean and healthy environment with access to sanitation will remain a dream.
In the union budget this year, the Finance Minister came up with some noteworthy “push” factors to make low cost housing affordable and attractive - both to buyers and developers. The budget provisions state that 100 per cent deduction for profits are allowed to an undertaking in housing projects for flats up to 30 sq. metres in the four metropolitan cities and 60 sq. metres in other cities for projects approved during June 2016 to March 2019 and completed within three years. Minimum Alternate Tax (MAT) would still apply. This exemption for affordable housing projects would bring in a 15 per cent to 20 per cent upside on profits after paying MAT, for a real estate developer undertaking such a project. It would also make it easier for the developer to attract foreign and domestic investment for housing projects. Additionally, the budget provides that construction of affordable houses up to 60 square metres under any scheme of the Central or State Government including PPP Schemes will be exempt from service tax.
First time home buyers will also get a deduction for additional interest of Rs. 50,000 per annum for loans of up to Rs. 35 lakh sanctioned in 2016-17. These measures are designed to get developers to redeploy money towards building more affordable housing.
With 90 per cent of the demand in housing being in this sector, the budgetary provisions have tried to ease some of the supply side constraints. There are additional supply side constraints in terms of land availability, which is the most basic requirement for housing. With the government thinking seriously about digitising land records, perhaps this might ease the problem of encumbrances and other such land related issues and make it simpler for developers to obtain the required land.
It must also be mentioned that the three year window for completion of projects may cause some hardship to developers unless there is a process of single window clearance for all the municipal, local and other permissions required prior to starting a project. Construction of low cost houses has never been the focus area for majority of builders. With the recent focus of the Government towards affordable houses with tax sops, incentives, waiver of service tax etc., the time has come for a major shift of focus to low cost housing. The current policies of the government are a step in the right direction and will give a fillip to the cause of affordable housing which is affordable from the buyer’s standpoint and profitable for the developers.