In 2023, sales of housing in the top seven cities reached about 4.77 lakh units, while sales of newly launched homes reached almost 4.46 lakh units. But the share of budget housing in India shrank to 20 percent from 40 percent pre-pandemic, according to Anarock estimates. Budgetary intervention is critical.
Delayed approvals and completion certificates, currently loads huge costs on the sector. A financial incentive to municipal agencies would help. If the Real Estate Regulatory Authorities (RERAs) are given control over municipal sanctions and completion orders, it would lead to timely approvals and completion.
India’s taxation on real estate is probably one of the highest in the world. If Budget 2024 acknowledges budget and lower middle income housing as a social objective, just lowering taxes on materials and state and city taxes would make them affordable. Demand at the base of the housing pyramid has dropped currently only because supply is not available. With tax incentives for budget housing loans, it will automatically enhance offtake and make the segment still more cost-effective.
A supply side intervention is to make budget housing of up to Rs 45 lakh per unit eligible for low cost construction finance, with an incentive for lending in this sector. This will make it more attractive to housing finance entities. With professional Financial Institutions looking at lending opportunities with no non-performing assets (NPAs), they would regulate project completion and return of finance.
Affordable housing can only succeed if it is made attractive to the private sector. My own study showed that at least 65% of potential beneficiaries do not aspire to buy a house but to live in a pucca rental house with basic facilities, near the place of work with primary education and health facilities in the vicinity. It is important to provide a stock of affordable rental housing driven by employer generated rental housing coupons. This should make them viable to employers with tax breaks and landlords with steady income. Many urban investors, post-Covid have started investing in real estate for passive rental income. If they come as regular payouts by corporates for the blue collar workers and entry level employees, it could become a win-win situation.
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A last budgetary intervention is to bring in economies of scale, with large Residential Development Zones for affordable housing would help bring facilities and services to these zones and create enclaves of affordable housing.
E Jayashree Kurup is a writer-researcher in real estate and Director, Real Estate & Cities, Wordmeister Editorial Services. Views are personal, and do not represent the stand of this publication.
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