Being an election year, the upcoming budget could hold some relief for homebuyers, especially those seeking to own their first home. And this, in turn, could be good news for housing finance companies (HFCs).
Among what is demanded from Nirmala Sitharaman are tax sops, lower taxes on registration, an expansion of the definition of affordable housing, etc., all of which target the middle class.
“For a large section of the population, affordability remains the biggest challenge, and hence there should also be an expansion in the definition of affordable housing, as this would expand the benefits for homebuyers and hence boost end-user demand. Any tax exemption from rental income will also encourage greater investment in residential real estate,” said Ramani Sastri, Chairman & MD, Sterling Developers.
“There is an express need for more tax sops for both homebuyers and investors. The government should raise the deduction limit for interest payments on home loans from the existing Rs 2 lakh a year to Rs 5 lakh, which will add momentum to housing demand, reduce the GST rate on under-construction properties and effect adjustments in raw material pricing,” he added.
Key housing scheme: PMAY
Prime Minister Awaas Yojana (PMAY) is the flagship scheme of the government, launched in 2015 to provide affordable housing to all citizens. The scheme was created to assist the middle-income community, economically disadvantaged groups (EWS), and low-income groups (LIG).
Then there is the credit-linked subsidy scheme (CLSS), through which the government aims to provide the borrowers with an interest subsidy to avail loans to purchase or build a house. The scheme has two parts – PMAY - Gramin, and PMAY - Urban.
In the FY24 budget, the government increased its allocation to the scheme by 66 percent to Rs 79,000 crore to build 80 lakh houses. The previous budget allocation stood at Rs 48,000 crore.
As per the government data as of November 2023, against the mandated target of 2.95 crore houses (since 2015), more than 2.94 crore houses have already been sanctioned to the beneficiaries by various state governments, and the construction of 2.5 crore houses has been completed.
There is a demand to continue the scheme with an even higher allocation in the interim budget.
Beneficiaries
According to rating agency ICRA, apart from the people who are building homes, the scheme boosts demand for housing credit, especially from non-banking finance companies (NBFCs) that provide housing loans in rural areas. Moreover, it is a positive for the cement sector, it adds.
Some of the biggest beneficiaries from increased allocation to PMAY could be names like Aadhar Housing Finance, HomeFirst Finance, Star Housing Finance, and Aawas Financiers, among others. Among cement makers, Ultratech Cement, ACC, Ambuja Cement, Star Cement, JK Cement, etc. should be on the radar.
Change definition
Meanwhile, Payal Thaker, Partner, Indirect Tax, BDO India, said the definition of affordable residential apartment should be based on the carpet area of the apartment and not the gross amount charged. This is because in metro cities, the value of apartments can be significantly higher due to high land costs.
Such steps can further boost the housing market in India and lead to further growth in the assets of HFCs.
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