Budget should make the ‘Housing for All’ dream come true
“Housing for All 2022” has been one of the key manifesto points that the NDA government has been keen to achieve. The last Union Budget 2016 -17 provisioned for 100% deduction of profits to an undertaking from a housing project for flats upto 30 sq. metres in four metro cities and 60 sq. metres in other cities, approved during June 2016 to March 2019, and is completed within three years of the approval. This was aimed at encouraging developers to construct affordable housing projects and help in contributing in the “Housing for All 2022” scheme.
There are however some mismatch in the way the market has worked vis-à-vis the expectations of the government and thus even after 18 months of formally launching this initiative, the progress is nothing to write home about.So where exactly can the government concentrate to ensure that its aim for housing is met?
In my understanding this has to be at three levels.
Firstly, the tax benefits for home buyers should be further relaxed. In the last Union budget 2016 – 17 the government announced an additional INR 50,000 tax deduction on interest paid for a loan amount less than INR 35 lakhs and for a house value less than INR 50 lakhs. This could be further revised to include all home loans for first time buyers for interest paid upto INR 3,00,000 /- and not be restricted to the value of INR 50 lakhs only. This will become one of the key drivers to promote end users to purchase.
Secondly and most crucially, the government has to make development of affordable or high demand housing more attractive for private developers to participate in. While last year the government announced a 100% deduction of profits to an undertaking from a housing project, aspects such as Minimum Alternate Tax (MAT) continued. The availability of construction finance and interest rates has been restrictive. A simple step to take would be to increase the ambit of the External Commercial Borrowings (ECB) for construction finance for wider range of housing projects and not limiting to the low-cost/ affordable housing. Further, if the government could make available government owned institutional financing to the priority housing projects, it would greatly enable private developers to participate in the same. The government could look at providing secured lending through National Housing Finance boards etc.
Further, there has not been any intervention from the government in terms of land acquisition or land development costs which continue to remain high. If the Government can work towards easing the pain for these priority housing segment, we subsequently will see more relevant housing units being built quickly and successfully by the private sector. This will have a huge multiplier effect on the economy as a whole and especially the industry as it will also help to minimize the risks for developers who can then also focus on catering to the lower income earning households.
The most important aspect of my discussion would however be the definition of Priority Housing. While the government has been forthcoming in actually providing a size definition towards this as 30 square meters (sqm) for four metropolitans and 60 sqm for other urban markets mostly targeted at the Lower Income Group housing. The government really needs to move towards meeting the expectation of burgeoning Urban Middle Class. We know that over a third of India’s population will be dwelling in urban locations by year 2020 while the middle class population would be close to 500 million. This section will also propel the economic growth of India to the tune of nearly 60% – 70% of the GDP.
This section has to be catered to, to ensure that their housing dreams are met. Understanding the current capital values scenario we notice that the ticket size of homes in the urban centres are much higher than INR 20 – 50 Lakhs. Given the high costs of land, labour, materials and cost of operations, developers can offer suitable homes that are usually in the range of INR 80 lakhs (in the peripheries) to INR 1.5 crores (in established suburbs). Thus we suggest that the government redefines the ‘Priority Housing’ to include houses costing upto INR 1.5 Crores and extend the benefits to first home buyers for homes upto the aforementioned costs. Developers of such projects should also benefit from the government financing and other tax initiatives that are extended for housing development.
Finally, the Government will also have to look at boosting economic activity in a much bigger way by not only increasing public expenditure but also by rejuvenating manufacturing and other activities by re-orienting its policies for promoting and establishing SEZs or similar zones. The country cannot hope to have a successful ‘Make in India’ campaign by recasting its policies for economic activities whilst the rest of the world marches ahead.