Here’s why infra status to affordable housing may not mean cheaper homes in the metros


Although the finance minister announced several steps in his Union Budget 2017-18, for the affordable housing segment, it may still fail to make homes affordable for the common man. We explain why

Siddharth Chopra, a resident of Mumbai, was glued to the television news channels, during the live telecast of the Union Budget 2017-18. Like many, he was expecting a bonanza for middle-class affordable home buyers. Now, he is rather confused.

“It is no doubt a populist budget that may earn goodwill for the government and garner votes in the rural areas. However, for people like us, living in the metro cities, I wonder how the budget has addressed the concerns of affordable housing. The government may have redefined affordable housing, by increasing the size by adopting carpet area and giving it infrastructure status but that will only address the concerns of developers. What about the home buyers?” questions Siddharth.

Affordability, for a common home buyer, is more about the pricing than the size of the apartment.

As per the standard definition of affordable housing, a house is not affordable, if it costs more than five years of gross income of the buyer and simultaneously, if the EMI exceeds 50% of the take-home salary. Another definition often floated in the Indian context, is that any house that costs approximately 20 years of rental value, is affordable. The budget, if seen from this criteria in the major cities of India, fails to address the needs of affordable housing.

See also: Budget 2017 analysis: Experts believe middle-class home buyers have been ignored

 

Developers happy with Budget 2017 announcements

Developers are nevertheless happy, as the budget has addressed some of their concerns to a large extent. JC Sharma, MD & VC of Sobha Limited, points out that the focus on affordable housing is laudable, as it has been accorded ‘infrastructure status’ which will have a cascading effect. “The government’s proposal to take into consideration the carpet area of 30 and 60 sq metres, instead of a built-up area of 30 and 60 sq metres (as was the case earlier), of the houses, is a welcome step. The limit of 30 sq metres will apply in the municipal limits of the four metropolitan cities, while for the rest of country, including the peripheral areas of metros, the limit of 60 sq metres will apply. This will allow developers to plan their future projects, within the prescribed carpet area and this will boost the housing sector immensely,” believes Sharma.

Ashish Puravankara, managing director, Puravankara Limited, says that the budget has spelt out roadmaps and allocations across the various initiatives of the central government and the finance minister has done an excellent job of managing the expectations. According to him, the revision of built-up area to carpet area, will push the affordable housing category. “The granting of ‘infrastructure status’ to affordable housing, will boost investments in this category.

“Similarly, the extension of the period for carrying forward MAT (minimum alternate tax) from the existing 10 years to 15, years is a welcome move,” says Puravankara.

Kishore Bhatija, MD – real estate development, K Raheja Corp, says that the announcements made in Budget 2017, are in line with the government’s objective of boosting the affordable housing segment. He agrees that the infrastructure status to affordable housing, is a major step. “In addition to this, the tax relief for developers on unsold inventory, will lower the burden on their shoulders. The changes in income tax rate for the lowest slab, will leave more liquidity in the hands of consumers, thereby, boosting consumption,” says Bhatija.

However, despite the positive announcements, the fact lies that the budget has not addressed the key concern of making homes affordable for the average home buyers in the major cities of India. Moreover, there is hardly any substantial focus on job creation, which has a direct linkage with the housing consumption in the cities, especially the affordable housing.

 

Why the Union Budget 2017-18 may not help home buyers

  • Increasing the size of affordable housing, without reducing the price, does not address the concerns of affordability.
  • No relief on service tax and VAT, is a dampener for affordable housing.
  • No incentive for developers to reduce the pricing and make houses affordable.
  • Budget 2017 fails to redefine affordable housing and low-cost housing, in terms of price point.

(The writer is CEO, Track2Realty)

 

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