Budget 2016: Should make affordable housing the growth driver of real estate

Ashish BhallaArthVeda Fund ManagementAffordable housing is the need of the hour and thus it becomes more and more crucial to push it through government initiatives like Smart Cities, “Housing for All” and AMRUT. But, these initiatives do not account for the funding or the equity and debt capital required for setting these affordable housing projects in motion. Hence, some key measures to address these concerns in the Budget 2016 can provide for the required flow of funds to the affordable housing sector.Following is our Union Budget 2016 wishlist to attract funding for affordable housing developments falling under the purview of Pradhan Mantri Awas Yojna (PMAY):1. AIF CAT I status for private equity funds investing in affordable housing would enable channelizing private and public funds towards providing equity and debt capital to affordable housing projects.2. Promote foreign funding in affordable housing projects: DIPP has given away with the distinction between affordable housing projects and other projects for foreign direct investing recently. The definition should be invoked and should be brought in line with the PMAY.3. Lower cost of capital for affordable housing developers by the use of the Rs. 10,000 crores startup fund to finance private equity funds as well as startup developers in the affordable housing segment.4. Fund low cost construction technology ventures. This can be achieved by setting up a dedicated fund with the government as the main investor. This particular fund can also seek funding from the recently announced Rs. 10,000 crores startup fund.5. Tax relief / exemption to developers and private equity funds investing in affordable housing. A tax holiday similar to the ones announced for startups can also be provided to startup developers in affordable housing.6. Relief / exemption in taxation for buyers. Such a move will lead to increased sales numbers led by the relief/exemption benefits if passed on by the developers to the end customer because of the flexibility created on account of the some extra margins.7. Credit guarantee schemes for the affordable housing customers and projects: The credit guarantee to projects can be restricted to defaults / delays arising from the approval process and should NOT be provided on cost escalations / sales slowdown.8. Single-window clearance has been a long sought dream of the real estate sector. Single window clearance should focus on ensuring not only fast approvals but also on reducing the uncertainty in approval timeframes. More than any other segment in the Indian real estate, the thin-margined-affordable housing projects need it the most to make such projects financially viable9. Streamlining environmental clearance (EC) can significantly improve the financial viability of large affordable housing projects. Many affordable housing developers have been forced to plan small projects in order to avoid EC.10. Funds for building infrastructure in the satellite cities / towns: Under this, government should aim at creating financially viable affordable housing projects by aiming to improve infrastructure in satellite towns/cities where the large land parcels are available at much cheaper rates. Allocating budget towards setting up an infrastructure development would prove crucial for the plan to set in motion.11. Promote end customers (first time home buyers) and discourage investors: The Government should confine the tax benefits provided under the Income Tax Act Sec. 54 (F) on reinvestment of capital gains from sales of residential property to first time buyers only. This would prevent the bulk buying of affordable housing apartments because such investor activities ultimately lead to the price inflation of these housing units leaving them financially unviable for the customer.