Budget 2017: Here’s how homebuyers will benefit from government’s thrust on affordability
Infrastructure status for affordable housing will make homes cheaper and give buyers more options as new launches increasereal estate Updated: Feb 13, 2017 16:35 IST
As announced in the Budget, infrastructure status for affordable housing will be a good thing for the middle class as it will make homes cheaper and spacious. This will be made possible by laws which will make it mandatory for financial institutions to lend to developers of affordable projects – and that too at low rates. Developers will in all likelihood pass on the benefits to homebuyers. Measurements of the housing units have been specified, so expect bigger and better ‘budget’ accommodation
Developers so far reluctant to touch the affordable housing segment despite high demand are likely to be attracted by the easy access to capital at lower (because of affordability) rates and tax incentives. Even big brands will now be encouraged to get into this segment.
The months after June are likely to see a momentum in a market severely impacted by demonetisation. More affordable launches might happen, giving people more investment choices, especially in the Delhi NCR areas. Depending on the location and cost of land, housing units in these projects are roughly estimated to cost anything between Rs 15 lakh to Rs 25 lakh.
Developers can take infrastructure funding from financial institutions at a rate lower than 10% for constructing affordable housing. With borrowing costs going down, the benefit will definitely be passed on to the homebuyers, says Pradeep Aggarwal, co-founder and chairman – Signature Global, a company that already launched 7,000 units in Gurgaon and Sohna under the Haryana affordable housing scheme.
The infrastructure status proposal is likely to impact all projects under construction. Builders are expected to quickly move to comply with the affordability requirements – limiting the size of housing units to 60 sq m (carpet area), developing projects within 25 km of the municipal limits of four metro cities.
“All these projects will now qualify as infrastructure and get easy access to financing. While existing buyers will now be assured of timely completion, new buyers and new launches may receive some relaxation in terms of pricing. Some buyers will also now qualify for the Pradhan Mantri Awas Yojana subsidy,” says Manoj Gaur, managing director, Gaursons India.
Currently most states have their own affordable housing policies. In Haryana, external development charges (EDC) and internal development charges (IDC) are exempt while in Uttar Pradesh EDC/IDC charges, land use charges, service tax and stamp duty charges are waived off. As for housing unit size, don’t expect pigeonholes as the government has clearly specified that instead of built-up area (which includes public space for lifts and corridors in a building) the carpet (wall to wall) area of 30 and 60 sq m would be considered.
The 30 sq m measurement is applicable for affordable housing projects located in the four metro cities while a limit of 60 sq m will apply for projects located within a distance of 25 km from the municipal limits of these four main cities. The demand for affordable homes is likely to increase given the extra cash people will have in hand due to proposed deduction of the income tax rate to 5% for taxpayers earning less than Rs 5 lakh.
Added to this will be the interest subvention of 4% and 3% on loans of up to Rs 9 lakh and Rs 12 lakh, respectively, as announced by the prime minister in his New Year eve’s speech for some people. “The real estate market is likely to see maximum launches in the affordable housing segment. There will also be a structural shift in pricing and not a price cut. The benefits that builders will get under the scheme include a profit tax holiday which means that they will not have to pay tax on the profits earned from these projects. More builders will thus enter this segment. This will ensure that buyers will get more housing options,” says Samantak Das, chief economist and national director - Research, Knight Frank (India) Pvt Ltd.
Developers will also get five years to complete the project instead of three years at present out of which maximum time goes into getting approvals. Getting priority sector lending will get builders more funds at reasonable rates and these benefits they may pass on to the customers,” he says.
To cite an example, if a 60 sq m apartment in Greater Noida today is currently priced at Rs 3,500 per sq ft (around Rs 27 lakh), the same unit under the scheme will now be 30% more spacious (around 800 sq ft with carpet area being taken into account) and cost much less because of the tax holiday benefits being offered to developers.
The government has also extended the time of completion of such projects from three years to five years. Builders who do not complete projects on time will not get the incentives.