Budget to encourage more launches in affordable housing segment

The Union Budget’s proposal on additional deduction for interest paid on affordable housing loans is set to expedite new launches in the category.
 
“Already, roughly 67 per cent of all launches have been in this category. With the Budget continuing focus on affordable housing, the share of launches should improve to 75 per cent in the second half of the year. Anyway, the market has also been supporting launches in this category,” Ashutosh Limaye, head of ANAROCK Consulting Services, told Business Standard.
 
According to Ramesh Nair, country head at JLL India, the Budget will encourage more launches in affordable housing.

 

“The sector is going through a lot of challenge and the Budget has provided a needed impetus for growth in the sector. These kind of initiatives will give a boost for developers to do more smaller apartments in the affordable category. A recent study by JLL had found launches coming down by 11 per cent, although sales rising 22 per cent in the first half of this year indicates things are already looking up for affordable housing,” said Nair.
 
The Budget has proposed an additional deduction of Rs 1.5 lakh for interest paid on loans borrowed up to end-March, 2020 for purchase of an affordable house, valued up to 45 lakh. A deduction to the extent of Rs 2 lakh is already in effect. “Therefore, a person purchasing an affordable house will now get an enhanced interest deduction up to 3.5 lakh. This will translate into a benefit of around Rs 7 lakh to a middle class home-buyer over a loan period of 15 years,” the finance minister had said.

 
The rate of inventory liquidation is also likely to rise. Currently, of the total 650,000 in unsold units, including what is under construction, 35-40 per cent are in the affordable categories.
 
“Affordable projects which are nearing completion will now get sold faster. Also, for rental purposes, people will start buying more. However, the market is not yet ready to take the construction risk. Therefore, projects with more than half of construction done will see faster liquidation. Reputed developers will be able to sell at any stage of development. Of the 650,000 of unsold which includes under-construction, 12.5 per cent are completed and ready-to-move-in projects, within which half are affordable units,” said Limaye.

 
The impetus through the Budget comes when over half of the residential units sold between the second quarter of 2017-18 and the fourth quarter of 2018-19 were priced less than Rs 50 lakh. Indicating that affordable housing is selling well, says a recent study.
 
In the period mentioned, 54 per cent of sales were from units priced less than Rs 50 lakh, across eight tier-I cities in the country, goes an ICICI Securities report, quoting data from real estate analytics firm Liases Foras. Further, 59 per cent of residential supply in the fourth quarter of FY19 was in the less than Rs 50 lakh category.

 
The challenge would be for the government to set up public infrastructure in regions lacking this. "The government has to ensure that the infrastructure in the location of these affordable housing projects is also ready. Sometimes, it has been observed that just because the location does not have government infrastructure ready, even though buyers are interested in the projects, end-users are not coming since it is not livable yet," Limaye adds.