The real estate sector has been hit by falling demand amidst sky high property prices and rising interest rates. Financing has also become an issue as most developers are loaded with debt and thus banks are unwilling to lend. In order to come out of this situation, the developers have sought a helping hand from the government.
The real estate industry is pitching for an infrastructure status for the housing sector, especially low cost housing, in the upcoming budget. This would help builders avail tax benefits and also ease the flow of credit to the sector. Also, there have been demands that the deduction from rental income should be increased from 30% to 50%. This is likely to promote rental housing. Industry is also lobbying for elimination of service tax on residential construction.
It may be noted that right now affordable housing falls under the commercial real estate category. Once it manages to get the infrastructure status then it would get priority in lending by banks and the interest rate charged would also be concessional. The housing minister, Ajay Maken, is also of the view that affordable housing needs a re-classification to the infrastructure sector so as to avail loans at cheaper rates.
Apart from granting infrastructure status, we believe that the interest rate subsidy of one percent on low cost housing should also be continued. Further, External Commercial Borrowing (ECB) for low cost housing announced in the last budget should be carried forward. All these moves will address the financing issues that the real estate sector is facing.
We know that India is facing a huge shortage of dwelling units. Though there may be vast unsold inventory, it predominantly belongs to the luxury housing space. In the premium housing, there is a cat and mouse game between the buyers and builders in the sense that the builders are unwilling to relent and buyers are happy in playing the wait and watch game. But affordable housing falls in a different strata altogether. It needs some kind of support and relaxations from the government. And the move to grant it the infrastructure status is a step in the right direction to revive that section of the real estate market.