Budget: Not much for housing and real estate

A plain reading of the budget speech text of the finance minister pertaining to housing and real estate sector would imply that the government has not done much for the real estate
sector and housing sector in particular, in this budget.

This budget announced just three things pertaining to the housing sector, the first being extension of interest subsidy of 1.5 lakh on loans taken for affordable housing, a tax holiday for developers to keep up the supply of ongoing affordable houses projects and finally the third being a similar tax holiday to start the supply of rental housing projects.

However, if you look back at the slew of measures taken by the govt before the budget and connect the dots, you will find that the government did take all the necessary steps and that too when they were needed most. The Government of India came out with several announcements since pre & post-Covid-19 period that helped the real estate sector stay firmly on ground. The government granted an extension to complete projects, funds to ensure liquidity, steps to help stuck projects, rationalised risk-weightage norms to ensure necessary capital was available to the lenders, and also announced the moratorium & restructuring of loans.

The affordable housing segment, on the other hand, survived the bad period better because it catered to the price bracket that has maximum demand. Several factors worked in favour of affordable housing, including Rs 4 lakh crore liquidity infusion announced by the RBI in March 2020, the CLSS scheme extension announced in May, relief under EPF, completion of stuck developer projects, guarantee scheme for lenders etc. However, the best news for home buyers has been the unprecedented steep reduction repo rates, which resulted in home loan interests coming down to 6.8%.

The sector made a comeback of sorts in Q3 with sales and new launches rebounding to almost 65% of the pre-Covid-19 levels. Maximum sales were seen in the MMR, NCR and Pune; the three cities accounted for the majority of the sales in Q3. The reduction in stamp duty in Maharashtra followed by Karnataka, coupled with developers’ reducing sale prices of houses of their existing stock and all-time low home loan interest rates probably were the reasons for the light to finally shine at the end of the tunnel. The affordable housing segment comprised 60% of the total new supply in the Q3 in major cities. Now if you have connected these dots, the govt has actually played its part in supporting & boosting the housing and real estate sector. If there was anything more that was left to be taken care of, it has been done by way of the three additional measures announced this time around in the budget.

The real estate and housing will get it next shot in the arm when the economy / GDP will grow at 10+% in a sustained manner in the next several years because of the quantum of
money and schemes announced for the balance of the economy and sectors.

We all know by now the continuing sad story of high- and middle-income housing in India, which was entirely due to oversupply, coupled with exorbitant prices of these new supplies resulting from over-enthusiastic consumer speculation in real estate. Consumers can explain their actions now by taking recourse to the lack of credible investment options in the economy in the last 10 years.

But it must have been understood well by the middle class that to take a punt in real estate can become a costly mistake due to large outlay of cash required to play in this asset
class. We must all hope and pray that the affordable housing borrowers do not indulge in such speculations encouraged by the subsidy and focus of the government in the sector. What then would ensure that this government intent and action is translated into an actual increase in housing supply and purchase by those who need it the most? We have all seen the horror story of migrant workers walking thousands of kilometers to their village during the initial days of Covid-19. The landlords asking them to vacate because they could not pay the rent. This alone should be the reason for all constituents to ensure that the government intent is actually translated into reality.

Housing loan sector however has seen changes that do not bode well for affordable housing finance. The 60:40 market share ratio of Banks to HFCs has gone back to 75:25 largely due to NBFC crisis on the liquidity. The supply of funds is low and also expensive, small HFC who focused on affordable housing and informal nature of income of the segment borrowers are not doing enough business and even if they are doing any, the interest rates are well above 11% and not the 6.7% offered by SBI and HDFC.

The large banks focus on affordable housing is not as much since they are busy dealing with significant increase demand in prime segment loans due to HFC slow down. Will Banks do enough for the affordable housing borrowers then? Looks unlikely at the moment. To ensure that Banks focus on affordable housing, the regulators must now act and come out with priority sector lending (PSL) like a mandate to originate at least 15-25% of mortgage book in affordable housing. Here, affordable’s definition should be loaned below 15 lakh. Initial boost in this segment should get this sector well on its course as the Indian economy starts approaching the 5 trillion mark.

(The writer is Chief Risk Officer, India Mortgage Guarantee Corporation)