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Amit Dave / Reuters
"Housing for All by 2022", launched in June 2015 is one of the flagship programs of the NDA government. The scheme aims to meet the housing stock shortfall of 2 crore. Meeting this gap would require construction of 30 lakh houses annually. However, data from July last year shows that work was progressing on less than 15% of the approved projects. One can imagine how many of these projects would have actually been completed. An estimate from May 2016 suggests that the completion rate was only 0.1%. This huge gap, between the numbers of sanctioned versus constructed houses calls for immediate alteration of the implementation approach.
The most important announcement made is that affordable housing will now have infrastructure status. This has significant implications for ease of financing of housing projects...
The Union Budget 2017-18 can be seen as a progressive step in that direction. The Pradhan Mantri Awas Yojana (PMAY-Urban) has received an allocation of ₹6043 crore, a 19% increase over 2016-17 estimate of ₹5075 crore. The most important announcement made is that affordable housing will now have infrastructure status. This has significant implications for ease of financing of housing projects as developers of affordable houses can now easily access institutional credit. This is likely to provide an impetus to construction of affordable houses across the country. Infrastructure status can make it easier for the government to release land specifically for development of affordable housing. How much assistance will be provided for land acquisition, of course, remains to be seen.
The FM also announced a change in criteria of affordable housing, as per the profit-linked income tax exemption scheme for promoters of affordable housing. It has now been raised from built-up area of 30/60 sq m to carpet area of 30/60 sq m. Also, the 30 sq m limit will only apply to the four metropolitan cities and for the rest of the country, the limit of 60 sq m will apply. Along with this, the eligibility criterion of the completion term has been raised from three to five years. These changes are likely to make this scheme more lucrative for developers and more attractive for the buyers as relatively more spacious houses are built, which even expands the buyer-pool for the developers. Also an extension has been provided on payment of tax on notional rental income i.e. the tax will apply on unsold stock only after one year of the end of the year in which the completion certificate is received. This will reduce the pressure on builders to quickly dispose of their inventory.
Surplus liquidity with banks [due to demonetisation] has already translated into reduction in their lending rates, including those for housing.
Some changes in the capital gain tax provisions in respect of land and building have also been suggested—these should make the assets more mobile. In order to incur capital gains on immovable property, there was a holding period of three years, which has now been reduced to two years. The base year for indexation has also been shifted from 1 April 1981 to 1 April 2001 for all classes of assets. This will reduce the amount of tax being calculated as 2001 prices are going to be higher than 1981 prices. These two proposed changes should incentivise asset owners to not stock up and should increase availability of houses in the market.
The impact of demonetisation on lending rates is evident. Surplus liquidity with banks has already translated into reduction in their lending rates, including those for housing. In addition, the Prime Minister in his address to the nation on New Year's Eve, had already announced interest subvention of 3% and 4% for loans of up to ₹12 lakh and ₹9 lakh respectively under the PMAY (Urban). All these incentives are expected to augment affordable housing in peri-urban areas of the country. The refinancing of individual housing loans of about ₹20,000 crore in 2017-18 by the National Housing Bank will add to the affordability of houses for many EWS and LIG individuals.
The budget announcement of limiting cash payments to ₹3 lakh should ensure that black money, after re-monetisation, does not flow back into real estate so easily. This could keep the property prices in check and boost affordable housing.
