Reforms accelerating affordable housing finance growth momentum

The affordable housing and finance sector has been witnessing growth over the last few quarters. With a number of reforms such as RERA and the exemption of GST on affordable housing, the sector is being looked at very closely with three specific trends driving this industry momentum forward.

Affordable housing

The affordable housing segment is clearly on an uptrend. Growth in supply has been estimated to be 15 per cent in terms of launches in the last three months, as compared with the previous quarter. It is imminent that developers will start to consider expanding their portfolio in affordable housing that addresses the needs of the lower or middle-income households.

Affordable housing scripted a growth of 27 per cent between January and September 2017 (y-o-y) compared with an overall residential housing contraction. This trend has been driven by the mission-mode implementation of PMAY; affordable housing’s new found infrastructure status; as well as much-improved inflow of formal credit (via NBFCs and banks) to the segment. By 2022, the government seeks to achieve housing for all citizens which is estimated to be a Rs 6-lakh-crore business opportunity. Additionally, several progressive and reform-led initiatives undertaken over 2017 have also played a transformational role for the housing industry — Real Estate Regulation Act (RERA) to enhance transparency and consumer trust, the goods and services tax (GST) to adopt a comprehensive taxation structure, Real Estate Investment Trusts (REITs) to boost investments and Sebi draft guidelines for real estate investments.

RERA: The impact

As India’s first real estate regulator, this act enforces that each state and Union territory forms its own regulator and frames rules that will govern the functioning of the regulator. Going forward, RERA will
create a more equitable and fair transaction between the seller and buyer by bringing in an organised approach, higher accountability and greater transparency, thus, benefiting all stakeholders.

Banks or NBFCs while enabling loans to individuals are looking for properties with a clean title, no legal hassles like multiple claimants, track record of the developer, any additional leverages on the property, etc. Having a RERA certification enhances the project’s eligibility for home loans but the eligibility criteria for an individual applying for home loans remains the same.

Goods and services tax

GST has subsumed central excise, service tax, VAT and other local levies which have helped create a uniform market, thereby contributing to overall GDP growth.

GST on Home Loans

As far as home loans are concerned, it is important to understand that there is no GST or service tax levied on the interest component of your home loan. Similarly, any stamp duty charged in connection with the documentation of the home loan, will also remain unchanged, as stamp duty is not subsumed under the GST regime.

On an overall basis, the future for affordable housing and the housing finance sector as a whole continues to be positively led by the housing potential that India needs. With ‘Housing for all by 2022’ leading the way, followed by RERA and GST on affordable housing, prospective home buyers can be assured that buying their dream home is now an achievable reality. At present, home loans interest rates are in the affordable range.

Led by the government’s commitment, banks and NBFCs continue to offer attractive deals. This, together with steady real estate prices is undoubtedly a good time for home seekers to apply for home loans and buy their dream home.