Tag Archives: Housing for All

Homebuyers not to gain with PMAY increasing carpet area

Posted on by Track2Realty
Track2Realty Exclusive

Bottom Line: Enhancement of the carpet area of houses for the Middle Income Group (MIG) category, under the Pradhan Mantri Awas Yojana – Urban (PMAY-U) fails to address the larger concerns.

Track2Realty, Track2Media, India Real Estate, Valuations of Real Estate, Realty News, Property News,With the Government of India approving an increase in the carpet area of houses for the two middle-income group categories, under the Pradhan Mantri Awas Yojana – Urban, the industry stakeholders are getting euphoric as if this is the panacea for the ills that the afflicted the business.

An impression is being created that the new norms would revitalize the real estate market and the standing housing inventory would be absorbed much sooner than expected.

A closer look at the top ten cities and the price point clearly suggests that the move would hardly make an impact over the housing dynamics in the cities. Many of the Tier-II cities also defy economic rationale to support the industry-anticipated benefits. Across section of homebuyers are hence not enthused with the move; even calling it out of sync with the market realities.

Amit Nagarjuna is buying a 950 sq feet (88.25sq meter) apartment in Malad, Mumbai. Will he now go for a 340 sq feet additional space to avail the benefits of new policy incentive? He just laughs it out and rather asks a counter question, “Do you know the cost of property in Mumbai? Can you imagine my loan amount for this property?”

Well, for a person like Amit who is buying an apartment at the cost of INR 2 crore with a bank loan of INR 1.4 crore such announcements mean nothing.

Similarly, Shweta Mehrotra, a homebuyer in Noida that is most affordable property market among the top 10 cities, is buying a 1200 sq feet (111.4 sq meter) apartment at a cost of INR 80 lakh. Her bank loan is INR 60 lakh. Would she get tempted to buy a 1600 sq feet (148.6 sq meter) apartment at the cost of INR 1,10,000 and get benefitted with the new announcement?

“I fail to understand why everyone is going gung-ho with a policy announcement that hardly touches the majority of homebuyers. I don’t think in the cities today anyone who falls into the income of up to INR 12 lakh or INR 18 lakh would be in a position to think of buying a bigger house and take extra debt burden just to avail a few hundred or a thousand rupees lesser EMI,” says Shweta.

Why PMAY scheme for larger carpet area won’t work? 

Property prices beyond the affordability index for sub INR 12-18 lakh annually earning buyers

Instead of offering larger carpet size, the policy should have increased income level or subsidy level to reach out to masses

The tangible gain with the scheme is only a couple of thousand rupees that is too less in EMI burden for houses 

Most of the homebuyers across the country are of the opinion that instead of increasing the carpet area, that is mostly availed by the financially well-to-do buyers, had the government increased the income level or the subsidy level that would have encouraged more homebuyers.

A back of the envelope calculation by Track2Realty, real estate think-tank group, finds that most of the sub INR 12 lakh yearly earning buyers anyway are not in a position to buy more than 1000 sq feet (92.2 sq meter) of houses. Similarly, majority of the buyers with earning under INR 18 lakh yearly prefer to buy around 1200 sq feet (111.4 sq meter) or at the max 1400 sq feet (130 sq meter) of houses.

In terms of the financial calculation, it is a globally accepted norm that any house that costs more than five years of gross income with the second simultaneous condition of not commanding more than 50% of take-home salary is not affordable. With the given conventional wisdom of affordability, if a house costs INR 80 lakh (considering 1000 sq feet or 92.2 sq meter as the lowest base) for a buyer having INR 12 lakh annual earning, it is a huge liability.

The financial calculation clearly suggests that the size of the house cannot be exceeded by majority of the buyers with the PMAY reducing the EMI liability a few hundred rupees.

The industry stakeholders are nevertheless trying best to create a positive vibe around the scheme. Jaxay Shah, President, CREDAI-National, opines that Housing for All by 2022 has taken a huge leap forward by the increase in unit size of MIG Houses under Credit Linked Subsidy Scheme. The average middle class in smaller towns and cities would now be able to afford bigger and better quality homes than before.

“On the supply side, private developers have improved incentives to increase scale and contribute to bringing about of New India. CREDAI compliments the government on relentlessly pursuing a progressive and inclusive agenda on housing,” says Shah.

Gagan Banga, VC & MD, Indiabulls Housing Finance echoes the similar sentiment when he says that the cabinet’s decision is a massive positive for the macros of housing. The homebuyer now has a larger pool of prospective houses to choose from. The fence sitters specially, who were delaying their home purchase will now be given a further push.

“Builders, meanwhile, will not only enjoy the general uptick in the market that is ahead of us, but can also accelerate the sale of housing units which were earlier missing out on a sizeable portion of the Middle Income Group audience,” says Banga.

Even if one takes into account the stakeholders’ concern for the Tier-II cities getting benefitted with the scheme, property prices in most of the cities clearly indicate that the policy will not make any tangible result. Moreover, many of the Tier-II cities, like Patna, Lucknow, Jamshedpur, Bhubaneswar and many others for instance, have peaked the property price point to the extent of being more or less at Delhi-NCR level. Instead of offering larger carpet area for a small set of homebuyers, the policy should have been framed to offer larger financial assistance to even larger number of people. 

By: Ravi Sinha


Affordable housing steals the show in 2017

Posted on by Track2Realty

Bottom Line: After recognizing a massive gap of housing in India, the Union Government had announced ‘Housing for All’ by 2022 in July 2015 to achieve the staggering target of bridging a gap of more 1.9 crore houses.

india realty news, india real estate news, real estate news india, realty news india, india property news, property news india, india news, property news, real estate news, India Property, Anuj Puri, JLLM, Jones Lang LaSalle Meghraj96% out of these houses are required for the Lower Income Groups (LIG) and Economically Weaker Sections (EWS) groups. In India, while the population is growing at more than 2.1% every year and may touch 1.51 billion by 2030, growth in housing has been unable to keep the same pace.

The Central and States governments are now contemplating many ways and means to provide access to housing for all. Affordable housing will not only fill the housing gap but be the next major economic growth driver by creating more than 2 million jobs during the period till 2022.

To fill the massive gap of affordable housing in India, the government has come up with a spate of many initiatives:

To encourage the PPP (Public Private Partnerships) module which can amplify affordable housing, the Union Budget 2016-17 announced that developers would be exempt from paying tax on profits in this segment for five years starting 2016

The Government has increased the time limit to complete affordable housing projects from 3 to 5 years. Now, developers will have more time to complete affordable projects

The Central Government has raised the budget allocation under Pradhan Mantri Awaas Yojana from INR 15,000 crore in 2016-17 to INR 23,000 crore in 2017-18

The National Housing Bank, which is a subsidiary of RBI, has announced that it will refinance individual housing loans worth INR 20,000 crore in 2017-18

Affordable housing was given the vital infrastructure status in the union Budget 2017-18. Now, developers will have diverse and cheaper sources of funding, including External Commercial Borrowings (ECBs)

Financial Support and Subsidies 

To promote affordable housing, the Government has announced several financial schemes to make housing loans in this segment cheaper:

A 6.5% subsidy on interest on housing loans up to INR 6 lakh can be availed for 15 years

Government assistance of INR 1.5 lakh is extended for each beneficiary under EWS & LIG

A 4% and 3% subsidy on interest for loan amounts of INR 9 lakh and INR 12 lakh respectively

The Government is mulling the waiving Stamp Duty charges and reducing their impact

The middle-income group (MIG) of buyers with annual incomes above INR 6 lakh to INR 18 lakh is also included in the interest subsidy

The affordable price segment dominated the residential units supply in H1 2017. The recent new launches trend shows that demand for affordable housing with ticket sizes in the range from INR 5 lakh to INR 40 lakh is continuously growing. During the 1st half of 2017, the top cities (Bangalore, Chennai, Hyderabad, Mumbai, Delhi-NCR, Pune and Kolkata) recorded more than 60% of total residential units supply in the affordable segment.

The majority of projects in the affordable housing segment were launched in the peripheral boundaries of the top cities, largely due to non-availability of contiguous land parcels for large-scale mass housing developments and skyrocketing property prices in the central locations of our cities.

In H1 2017, the share of the affordable housing segment in new launch supply increased by 16% over the 2nd half of Year 2016. On the other hand, the mid and luxury segments witnessed a decrease of 4% and 9% percent respectively in the same duration.

By: Anuj Puri, Chairman – Anarock Property Consultants

Slowing economy & challenges of budget largesse

Posted on by Track2Realty
Track2Realty Exclusive

Bottom Line: The government is in a fix to offer middle class Indians budget incentives in general and to the homebuyers in particular to send across the message that it is indeed committed to its oft-repeated objective of ‘Housing for All’.

Union Budget, Money, Rupees, Budget for home, track2Realty, India real estate news, Indian property market, Union Budget for real estate sector, Track2RealtyTo say the eco-political compulsions are asking the government to dole out largesse in the upcoming Union Budget 2017-18 would be stating the obvious. The government is in a fix to offer middle class Indians budget incentives in general and to the homebuyers in particular to send across the message that it is indeed committed to its oft-repeated objective of ‘Housing for All’.

However, the state of the Indian economy suggests the government will have to walk a tight rope with the Union Budget 2017-18 amidst the forecast of a slowing economy. Though the banks are now flush with funds due to the government’s demonetisation and limiting the extent of cash withdrawal, the overall effect of the measure has not gone down well with the health of overall economy.

Already, the data released by the Indian Central Statistics Office has estimated that the economic growth would be slow to 7.1 per cent in the current fiscal year ending March 31. This is not only slower than the government’s own estimation but also slow compared to 7.6 per cent last year. Among the economic experts the slow growth forecast is seen as the first indicator of the impact of the demonetisation drive.

The estimates have been reduced in all the sectors, except agriculture, which has improved due to the positive monsoon season. The analysts believe this forecast is very toned down since the real impact would be seen in the upcoming fiscal year. Moreover, the impact on agriculture would also be visible as the demonetisation immediately prior to the crop season will take its toll.

Challenges galore with budget

  • The emerging eco-political compulsions suggest Finance Minister to read a home buyer budget for the middle class Indians
  • The state of economy leaves little room for any budget bonanza
  • Feelers with the rate cut ahead of budget indicate more sops but the economic forecast a dampener
  • Growth in real estate can help GDP growth but excess liquidity could also derail the economy with artificial growth

The real estate fraternity is nevertheless upbeat and believes that the state of economy definitely allows the government to provide major relief to the real estate sector in general and the home buyers in particular. 

They cite the Morgan Stanley Research Report dated 6th December 2016, which suggests the Indian annual property sales in expected to propel from 2015′s USD 105 billion to USD 462 billion in 2025.  Research estimates a 14% CAGR for property sector demand growth, 2015-20 (8% volume, 6% pricing), and an 18% CAGR in the five years after that, versus the 12% CAGR (5% volume, 7% price) of the past six years. 

India in 2015 appears similar to China in 2000-03 on key macro parameters – GDP (US$1.8trn), per capita income (US$1,500), urbanization (33%), demographics (27-year median age, with comparable population size), and improvements in the regulatory environment. In the past 15 years, China’s economy and per capita income have quadrupled, urbanization has doubled, and the property segment has grown 10x, to US$1.3 trillion in annual sales. In the longer term, this implies a structural uplift to India’s property sector.

“It is a peculiar situation and the impact of the state of economy is market ot market reality. This is because while the cash driven markets like Dehi-NCR are witness to slowdown, the service class markets are not that much affected. Of course, the slow moving job market is challenging but on a macro level one-size-fits-all statement cannot be made about the economic situation,” says Nikhil Hawelia, Managing Director of Hawelia Group.

Kaizad Hateria, Brand Custodian and Chief Customer Delight Officer, Rustomjee Group asserts that it is not that any sops are being taken away from the economy; it is in fact adding to the economy. The budgetary relief will not cost the economy. In fact, it will be a boost to the economy. It is high time that the real estate should be taken seriously. For instance, opening of PE should be done in a speedy manner.

“Based on proprietary regression analysis and in-depth China case study, research estimate a 14% CAGR for property sector demand growth, 2015-20 (8% volume, 6% pricing), and an 18% CAGR in the five years after that, versus the 12% CAGR (5% volume, 7% price) of the past six years. Inadequate urban planning and low infrastructure spending are key risks to our outlook,” says Hateria.

Parth Mehta, Managing Director, Paradigm Realty believes that due to demonetization there are expectations of benefits for the common man in the upcoming budget. Realty sector will be benefited indirectly by exemption in tax rates, thus increase in buyers purchase power for budget housing. The budget needs to work on holistic model where the developers are incentivized for budget housing.

“The budget should cover the entire value chain right from materials procurement, government premiums, lower turnaround time for approvals to developers and as well stamp duty payments, lower home loans rate for the buyers. This would ensure that complete value chain is perfected for the delivery of the affordable housing,” says Mehta.

Vivek Mohanani, Joint Managing Director, Ekta World adds that in the previous two Union Budget sessions, the government offered various incentives to businesses in a bid to boost investments and economic growth. The year 2016 has laid a strong future foundation for the real estate sector with the policies like Smart Cities concept, Housing for All by 2022, GST, RERA Act implementation, Demonetization and Benami Transaction act, which will further sanitise the real estate sector in the coming years.

“The real estate market is expected to gain positive sentiments post the announcement of the budget. The upcoming Union Budget 2017-18 is believed to be heading towards the right direction looking at the steps and initiatives taken by the government in the current financial year,” says Mohanani.

Hopes apart, it is challenging for the Finance Minister to ensure that the Indian real estate remains a predominantly end-user market, driven by urban immigrants, upgrades & family nuclearisation, and the average Indian moving towards home buying age (projected to be 31 years, by 2025). Proposed regulatory changes (e.g., RERA, REITs, demonetisation) should improve sector practices and benefit quality developers but the state of the Indian economy leaves little room for any largesse.

By: Ravi Sinha