Why Will Budget 2021 Write a New Tale of Growth for Affordable Housing?

The Government has made it clear over the past few years that Housing for All is the priority area for charting out a course of economic development in the country. The intention was evident in the recent Budget announcements where the FM went on to boost the affordable housing sector with an extension in tax exemption and a tax holiday for another year.

Both of these measures introduced in the Budget will directly impact the affordable segment, as the demand for such residential units continues to rise despite the economic slowdown caused by the lockdown.

While there are multiple reasons for this increase in demand, major ones remain the all-time low home loan interest rates, perception of real estate as an asset class strengthening among the end-users. In fact, in a recent report released by a property consultant, affordable housing already accounts for more than 35 percent of the supply across the top 7 cities in the country; amid the recent extensions and relaxations given to the segment, this becomes an opportune time for the affordable players to come and lead a new tale of growth. The buyer sentiment is welcoming for the experienced developers, as they have become increasingly cautious about their savings.

However, the segment of affordable housing is dominated by end-users, but a peak in investors’ interest is also observed, especially for the Tier II-III cities. Since the Government’s focus is also shifting from the metro to help smaller towns become the next growth hubs, the boost given to infrastructure in this Union Budget is a testimony that the real estate sector in Tier II-III cities is all set to evolve.

For the first time, an affordable home buyer will be able to avail of a cumulative deduction for home loan interest around Rs. 3.5 lakhs, comparing to the previously granted deduction of Rs.2 Lakh. More than 80 percent of the new launches have been in the Rs 45 lakh price bracket.

Regulatory changes such as the introduction of RERA, GST, IBC, and relaxation in FDI have made the nature of transactions in this sector transparent. More radical improvements in the taxation system and regulatory policies are of utmost importance to bring back the sector’s lost momentum.

Long-standing demands like industry status to the sector, with a little bit of clarity on Input Tax Credit, would have made matters even better for the realty industry. As post unlock the affordable segment experienced an increase in the number of site visits, and these properties had some sales momentum due to the pent-up demand and realisation of people owning their home immediately. This positive sentiment is likely to remain stable during the year 2021 as the government continues to support the realtors with stressed asset funds, relaxations in policies, and an overall boost to the infrastructure sector.