Ultimately it all depends on how much demand comes from the sub-Rs 20 lakh segment - few big developers operate in this range, so the package is unlikely to help them.

RAVI RAMU
Director, Puravankara Projects

The demand for housing in India is unquestionable. The demand for affordable housing is where the core of this demand emerges from. And it is only going to continue to increase in the coming years as the discernable shift in our economy towards greater urbanisation and an increase in per capita incomes keeps taking place.

Not enough had hitherto been done over the years by successive governments to provide industry with the required impetus to build good-quality affordable homes. The concerted effort by the government in addressing the basic funding requirements of the vast majority of the housing segment in the affordable under-Rs 20 lakh space is a very significant step for two vital reasons. Firstly, it makes the obtaining of home loans in this income bracket a far cheaper and easier than before. There is a clear and important undertaking to finance a significant component (85 per cent) of the cost of a home at a far cheaper interest rate than for loans for more than Rs 20 lakh. Secondly, and perhaps even more importantly, the government has finally put its money where its mouth is. It has, by providing specific monetary benefits to the affordable-housing consumer, sent a strong signal to both the developer and buyer of affordable homes that the government clearly believes that this is an area largely ignored in the past and one that now requires special attention. After all it is of crucial importance to a vast section of our people and to the Indian economy!

As developers of affordable homes in the private sector we feel greatly encouraged to move forward with our ambitious plans in the sub-Rs 20 lakh affordable homes segment. It has given us a belief that the government is now willing to provide us and the home buyer the necessary fillip in an area largely ignored by the private sector in the past. There is no doubt that that these measures will have an immediate and direct impact on sales of homes that cost less than Rs 20 lakh. Sentiments of home buyers needed a boost. Whilst the positive impact on higher-end homes may take a while coming, it is expected that the resultant uptake in the demand for affordable homes in times like these will benefit housing in general.

Enough positive noises since this announcement have already been made by several other “support” industries to home building. People in cement and steel, for example, feel that this is a leg-up at a time when the going was getting from difficult to bad for them. The expected increase in construction activity in the affordable housing space will go a long way in helping industries currently experiencing slackening demand in the backward integration line. The spin-offs to these other industries related to construction will be positive.

If real estate developers in this space are able to seize this heaven-sent opportunity in difficult times and concentrate their efforts in delivering high quality and affordable homes to the masses, then it is the end consumer who will live happily ever after.

A small step by bankers; a giant leap for affordable homes. Cheers Mr Minister!

AKSHAYA KUMAR
Founder & CEO, Park Lane Property Advisors

‘The big four firms have very little supply in the sub-Rs 40 lakh category, so this won't help them. It will help the smaller developers though'

This package is like mere drops in the ocean when a much larger dose was required. Though a few drops are better than nothing, I do not think it will have a significant impact on the property market. The moot point is supply. There is very little supply of homes at these price points. The big four listed companies have very little supply in the sub-Rs 40 lakh category. Even though they are planning to enter this bracket, it will take at least three to six months before they can launch such projects in the top six cities in the country. Most of them sell homes in the bracket of Rs 50 lakh and above. In tier-II and III cities, only a few developers such as Ansal and Parsvnath have some supply at these price points.

The package will have a positive impact, but with a lag effect. Hence the deadline of June 30, 2009 is unrealistic and impractical. In principle, the package looks good on paper, but it will have only a marginal impact on sales of big developers who are facing a severe cash crunch. However, for small developers it is an encouraging move.

The belief that sharper interest rate cuts will lead to an irrational boom in property market is unfounded. There will not be any boom in the property market at least in the next two to three years in spite of the government cutting rates further. The GDP growth rate has slowed; companies are not giving huge bonuses and overseas money is not coming in real estate like a few years ago. Hence, property prices cannot spiral. There is a clear slowdown in the economy, stock markets are down, the sentiment is negative and jobs are under pressure. Hence lower interest rates alone cannot lead to any boom. One swallow does not make a summer.

There are two issues pertaining to home sales: interest rate and pricing. The government has lowered interest rates and addressed this issue partially. But developers have not cut prices. Both factors are needed to stimulate demand. The market needs a mix of multiple factors -- it is clearly not an interest rate issue only.

I believe that interest rates can come down further in the next three to six months, but I am not sure whether developers will cut prices sharply even though at some point market forces will force them to do so. Some developers have cut home prices by 5-10 per cent and negotiating prices with different buyers. But buyers are not happy with a lack of clarity on prices. They would like to see transparent and standard prices with genuine discounts. Developers therefore need to cut prices aggressively. If prices are cut and interest rates are lowered, buying will definitely come back. Lower interest rates and lower prices together mean increased demand.

To summarise, I expect buying will come back slowly and steadily. It is not likely that buying will skyrocket overnight. It is a slow and steady process and the first step has just been taken.

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