Hyderabad, 4th July 2014: According to Mr. C Shekar Reddy, National President, CREDAI, the real estate sector is enthused by the government’s ambitious ‘Housing for all’ policy and seeks definite directions on the policy front in the upcoming budget. The success of any effort on providing housing for all requires mechanisms for adequate funding for low cost buyers and for developers as a prerequisite.
While long-term mortgage market is well developed for middle and high income groups, customers falling under low and moderate income groups find it difficult to access finance. Even access to capital for developers too is highly under served.
Mr. Reddy further adds that though Housing Finance Companies (HFCs) exist to address this segment, their funding limits need to be augmented. Currently, as per RBI guidelines, HFCs, registered with National Housing Bank (NHB), can offer loans below Rs 25 lakhs for a property value below Rs 30 lakh. These HFCs should have a minimum net worth of Rs 300 Crores for each of the last three years. Specialized HFCs who are funding low cost Housing will not meet these criteria and they should have an equal opportunity to access External Commercial Borrowings (ECBs). As of now, ECB for HFC is permitted under the approval route and we urge the government to move it to automatic route. Currently ECB for Construction Finance to Developers is permitted only under approval route; CREDAI recommends that ECB approval be moved to the automatic route with certification from a reputed Architect for the plans which meet the criteria of Affordable Housing definition.
Putting emphasis on the need of better lending policies, Mr. Reddy says that there is a need to redefine the Priority Sector Lending (PSL) status. Today, only housing loans below Rs 25 Lakhs in metros qualify PSL. There should be uniform definition of PSL as construction costs are more or less similar across the country be it metros or rural areas.
On the same note, considering spiralling inflation, the PSL limit for housing should be raised to Rs 35 Lakhs and the annual increase be automatically pegged to the WPI.
While direct loans from banks are considered priority sector, loans given by banks to HFCs for onward lending are eligible for PSL tag only if they are less than Rs 10 lakh. The objective of these policy measures must be to support flow of funds to low and moderate households and the policy should be agnostic to the structuring of the lending, whether it is direct lending to the customer or indirect lending through an HFC.
According to Mr. Shekar Reddy, real estate sector is looking forward to the Exemption of Service Tax for housing projects. The transaction taxes inclusive of the service tax, VAT, Registration and stamp duty etc for a buyer has sharply risen over the past few years and therefore need to be brought down from 30-35% presently to about 15%, which will make housing affordable for all. Also, BJP in their manifesto included interest subvention and rationalization of taxes; we request an interest subvention of at least 3% for 5 years to be extended for Dwelling Units of less than 80 Sq. mtrs for fulfilling the ambition of Pucca Houses for all by 2022. This will increase the eligibility of quantum of loan amount to the purchaser and help reduce the EMI burden on the Home loans.
He further said that the concept of NOCs are stopping the growth of the country, making Houses costly by about 40% due to delay in getting project Approval etc, it is recommended that NOCs to be completely eliminated to make online approvals implementable and successful. MOEF clearance to be made simple and applicable for a city master plans as a whole and not for individual projects. Civil Aviation Ministry should prescribe allowable heights for projects on the digital Master Plan of city and similarly Buffer Zones to be earmarked on Master Plans for Monuments, CRZ, Railways, and Defence etc instead of individual NOCs from the Departments.
Speaking on the much awaited demand of infrastructure status for the real estate industry Mr. Reddy pointed out that the Infrastructure Status should to be extended to Housing and Real Estate Sector to enable access to funding from banks and other financial institutions at a much lower cost. Construction loans for low cost or affordable housing must be eligible for PSL status as it would allow developers to obtain construction finance and at the same time developers can get attractive interest rates. Importantly, given the high cost of equity, a portion of the land should be allowed to be financed by bank debt or debt from financial institutions like HUDCO, HDFC etc.
Land finance may be permitted with institutional funds with prescribed qualifying criteria which can initially be limited only to Affordable housing projects.
Steps should be taken to institutionalize India’s real estate sector through widening the funding options to achieve quicker financing for real estate projects and give investors an alternate source of investment. Liberalization of foreign direct investment (FDI) regulations for real estate sector and wider access to financial markets. CREDAI advocates the easing of norms and restrictions for FDI to attract more investments through this route.
For the benefit of the End consumer and demand creation Mr. Reddy recommends that the government should increase the threshold limit to Rs. 5 lakhs for deduction on interest on housing loans under section 24(b) of the income tax from the current limit of Rs. 1.50 lakh. This is important as the cost of property has increased significantly and the increase in limits will encourage individuals to invest more in the real estate sector and avail the tax sops.
He also proposes that for the first time Home buyers from 2014 onwards, the maximum deduction can be lesser of 50% of the purchase price of the house. The deduction should be allowed as per the housing prices in different cities like Mumbai should attract exception up to Rs. 50 lakhs, Other cities like Delhi, Bangalore, Chennai, Hyderabad, Pune and Kolkata the slab can be fixed at 35 lakhs and for other cities Rs. 30lakhs. We propose that the deduction should be spread over a period of 10 years for purchase of one house. Total deduction remains capped at INR 5 lakhs for a given year. This will promote the demand for housing in a big way.
Mr. Shekar Reddy, is positive that if the recommendations on increasing funding options, reduction in taxes, increasing the limits for tax rebate on home loan interest, introduction of policy measures to hasten the approval process along with treating housing as an infrastructure sector, will trigger a spurt in construction activity and contribute to the double digit growth in GDP. I am sure the government will introduce these measures to encourage the housing sector to work constructively and take a proactive role towards achieving the mission of “Housing for All” by 2022.