Real estate News India: Low-cost housing, which found several mentions in BJP’s 2014 election manifesto, is likely to get infrastructure status, making it easier for real-estate developers to get finance from banks and for longer tenures, and eventually increasing the supply of houses. While developers are in favour of an infrastructure tag to the housing sector as a whole, the government is likely to grant it only to the low-cost segment, said a senior government official, who did not wish to be named.
According to government definition, low-cost houses are those with an area of up to 40 sq metres. BJP’s manifesto talks about rolling out a massive low-cost housing programme to “ensure that by the time the nation completes 75 years of its Independence (that is in about eight years) every family will have a pucca house of its own.” It talks about an innovatively designed scheme that dovetails various existing programmes and also encourages the housing sector by appropriate policy interventions and credit availability including interest subventions, where necessary.
According to a recent report by the National Housing Bank, the shortage of housing in urban areas is around 18.78 million units. Of that, about 95 per cent is in the low-income group and the economically weaker section. “At the moment, housing carries a very high risk weight and banks are worried when lending to the sector. With infrastructure status in place, the risk weight will reduce and banks will become more comfortable giving loans to developers,” said the official.
The decision is likely to be made soon by Venkaiah Naidu, the new minister for urban development, housing and urban poverty alleviation. Naidu is one of 24 Cabinet ministers in Prime Minister Narendra Modi’s government that was sworn in on Monday at a lavish ceremony at the Rashtrapati Bhawan. Even though he would take charge only on Wednesday, the former BJP president met secretaries and other key officials of the ministries at his residence on Tuesday.
Infrastructure status for low-cost housing has been a long-standing demand of the real-estate industry but experts say this will only help to a limit if other aspects such as taxation and interest rates are not considered. “It can only increase funding for the sector to a small extent as it will mean longer tenure of loans, but not lower interest rates,” said Lalit Kumar Jain, chairman of industry body Confederation of Real Estate Developers Association of India (Credai). “It will require a number of other things to be successful.”
It would, for instance, also require a faster approval process, quicker environment clearances, rationalisation of taxes, lower cost of funding and tax rebates for developers building such homes so that eventually it turns out to be profitable for them to be in this business, he said. According to Jain, the cost of finance is very high for both developers and buyers at the moment. “Low-cost houses can only be bought if interest rates for buyers in this segment are lowered below 7.5 per cent,” he said.
The housing ministry has been pushing the proposal for infrastructure status to low-cost housing for the past few years but it has been rejected by the finance ministry on two occasions, the latest being in 2013. The finance ministry is concerned about chances of misuse of the incentives that the segment could get.
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