Budget 2017: Infrastructure status to give a big boost to affordable housing

Finance minister Arun Jaitley in his Union Budget for 2017-18, has proposed granting of ‘infrastructure status’ to the affordable housing segment. We examine the implications of this move and how it will impact home seekers

With the real estate sector hoping for a push from the Union Budget 2017-18, the announcement of ‘infrastructure status’ to the affordable housing sector, can serve as a significant step in achieving the government’s ‘Housing for All’ mission. This could be a game-changing step for developers who already have a good presence in the affordable segment.

“It is a dream budget for affordable housing. Infrastructure status will transform the sector, much like deregulation did to telecom in the 1990’s. A 100 million houses across India will now be a reality,” asserts Rahul Nahar, MD, XRBIA Developers.


How infrastructure status will impact home prices

Experts point out that the infrastructure status, will enable developers operating in this segment to raise loans at a cheaper rate, akin to other infrastructure projects. This low cost of funding, would finally help the first-time home buyers, who would get homes at a cheaper rates. “With industry status, banks will be willing to lend more to projects in the affordable housing segment and thus create larger access to funds,” explains Nidhi Seksaria, advisory partner and leader – real estate, BDO India LLP.

The announcement of affordable housing being given infrastructure status is a welcome move, agrees Ravi Ahuja, executive director, office services and investment sales, at Colliers International India. “Credit offtake towards the affordable housing segment, will lead to the creation of supply, which will benefit the first-time home buyers. Developer will also now have access to cheaper funding. We expect the government to make a deliberate decision on defining affordable housing, keeping in view the differentiation between tier-1, tier-2 and tier-3 locations / cities,” says Ahuja.

See also: Budget 2017: What did developers and home buyers gain


Importance of affordable housing

The government had already announced a subsidy scheme for first home buyers. Therefore, lower cost of borrowing for home buyers as well as developers, will surely help the affordable housing segment. “By granting infrastructure status, the government has acknowledged that the affordable housing industry is an important driver of the economy. Affordable housing developers will now be eligible for several government incentives, subsidies, tax benefits and most importantly, institutional funding. The status could also mean that the government may release land, specifically for affordable housing development in central locations of major urban centres in India,” suggests Neeraj Bansal, partner and head of real estate, KPMG in India.


Budget 2017’s focus on affordable housing

Experts believe that the announcements in budget 2017, will have a positive impact on first-time home buyers. The tax rate has been reduced from 10% to 5% on individual income between Rs 2.5 lakhs and Rs 5 lakhs. This move will further help the first-time home buyers to own a property, they maintain. The qualifying size for affordable housing has also now changed, from a built-up area to a carpet area of 30 sq metres and 60 sq metres for projects within the municipal limits of the large 4 cities and all other areas, respectively. So, things have eased remarkably for the affordable home buyers.

Ssumit Berry, managing director, BDI Group says that the announcement of infrastructure status is a landmark for the real estate sector. “It will help the sector to get the benefits of infrastructure sector, which was a long-time demand of the realty industry. The new measure will reduce costs for developers and attract more investors. It is a great push for the ‘Housing for All’ vision and will definitely benefit first-time buyers,” he concludes.


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