Indian real estate is steadily recovering from its widespread slump of yesteryears. A lot of this has been facilitated by the Government’s mission of Housing for All by 2022, its subsequent emphasis on affordable housing, subsidies under PMAY (Pradhan Mantri Awas Yojana) and decision to cut GST rates to 1% and 5% on affordable and regular units respectively. The Government has also announced additional tax benefits on home loan interest repayment for affordable housing units priced up to Rs. 45 lakh.
That’s not all; the Government has come out with a slew of measures to boost Indian real estate including the announcement of an alternative investment fund for bringing relief to thousands of buyers by enabling the completion of innumerable stressed projects across affordable and mid-range categories. The Government has also undertaken several measures for encouraging second home ownership. The interest rates for home loans are now at a historical low after several repo rate cuts by the Reserve Bank of India (RBI) and subsequent lending rate cuts by Indian banks. However, all of these measures, while propping up Indian real estate on the road towards recovery, have not been enough to stimulate growth. The NBFC crisis and the subsequent liquidity crunch have deeply affected the sector in spite of the Government’s best efforts to woo customers back across segments. In this scenario, to ensure a brighter tomorrow for Indian realty, experts have recommended a slew of measures to help HFCs or housing finance companies as well.
How can the 2020 Union Budget help HFCs and real estate?
HFCs (Housing Finance Companies) are major entities in the whole financial setup since they offer housing finance to multiple sections of borrowers. The 2020 Union Budget should look at addressing issues plaguing this sector with a view towards sparking its future growth and sustainability which will benefit real estate indirectly in turn as per experts. They have suggested that the Union Budget for 2020 should enable the diversification of borrowing profiles as far as HFCs are concerned.
The Government may consider allowing suitably capitalized NBFCs and HFCs with strong ratings and decent rack records, access towards public deposits. This will lower risks by enabling better access to long-term and big funding sources, thereby scaling up overall borrowing portfolio diversity for the lender in question. The Government may also consider a hike in the tax rebates for interest repaid on home loans. This is highly necessary and the threshold should be raised from Rs. 2 lakh annually at present to encourage more entrepreneurs, SME owners and salaried professionals to invest in new homes. This will help in creating higher demand for real estate while benefiting HFCs considerably as well. The last such relief was via a higher Section 80C deduction in the year 2014. Another one is much needed and will boost home-buying sentiments tremendously as per experts.
They have also advocated the inclusion of ITC (input tax credit) benefits in GST for under-construction properties. The GST rates were lowered to 5% last year for under-construction units although the ITC benefits were done away with. Offering ITC benefits to real estate developers works as a big incentive for lowering prices of property and thereby increasing the attractiveness of properties under construction, once again. This will also boost housing demand considerably. There are multiple realty projects that are lying stalled or have been delayed for multifarious reasons.
Timely Government intervention through more last-mile funding and fixing mismatches in cash flow will give a fillip to projects in categories other than those in affordable housing and mid-income segments. The 2020 Union Budget may help in providing financial solutions that are structured and help in getting projects revived. This will boost the overall economic cycle and contribution to the same from Indian real estate, resulting in higher employment and growth in subsidiary sectors such as cement and steel.
Some other suggested measures
Experts have also suggested that NBFCs or HFCs which are notified under SARFAEI, should also get DRT notification. This will enable these entities to recover their losses on the sale amounts on the file action in DRT with regard to those cases where the security is disputed or incomplete. It has also been suggested that the Government can consider the creation of a central portal for accessing all property based records.
The development and maintenance of a central repository for all property transactions will be highly beneficial for the sector. This should be easily accessible for the general public and will be offering all necessary information as to the legal validity of any property. This will naturally curb fraudulent property deals which are often done with forged paperwork. There will be total information available in the portal with regard to new housing sanctions, approvals from authorities and clearances for construction. This data will not only boost consumer confidence, it will greatly help HFCs, NBFCs and banks with regard to conducting due diligence prior to sanctioning loans.
Aiding the recovery of HFCs with strategic measures will indirectly benefit the Indian real estate sector. While the Government has already done a lot towards bringing the sector out of the woods, much more has to be done to accelerate the process of recovery with a vision towards achieving future growth.
