ATM :: CREDAI`s Budget wish: Higher home loan relief, faster nods

Jul 05, 2014, 01.59 PM IST | Source: | Rohit Raj Modi – CREDAI
Delay in approvals increases overall cost of the project, that is eventually passed on to the customer, says CREDAI.


The real estate industry has seen a slowdown over the last two years with home sales as well as corporate leasing activity plunging. People have been postponing their home buying decision because of a lack of clarity on the political front as well as a slow economy. The corporate mood has also been similar.

In the last one month a new stable government has started to revive sentiments among buyers and corporates. For this to translate into buying, however, the government will have to announce several new measures so that the industry gets back on to its feet.

Home prices have risen spectacularly in the last few years across markets. There had been a home buying frenzy but with the economic slowdown, these high prices became unsustainable, hence the decline in sales.

The Confederation of Real Estate Developers’ Associations of India (CREDAI) has asked the government to help bring down home prices by bringing in a single window clearance policy which would mean they will not have to go to multiple windows to get different type of approvals from several government departments at the state and central levels. This also includes environment clearance, which could take over two years to come. According to a study, the cost of affordable housing can be reduced by up to 35% by bringing in a more efficient and corruption free approval process.

A delay in getting approvals increases the overall cost of the project and that is eventually passed on to the customer.

Government need to work towards inclusive growth of the sector while removing the minimum project size requirement of 50,000 sq metres and a minimum capital requirement of $5 million for housing projects to bring in foreign money, allowing automatic approval of External Commercial Borrowings (ECB), priority sector status to construction loans taken from banks for affordable housing projects and also a possible interest rate subvention for home buyers, which will go a long way in reducing the cost of home ownership.

Simplifying clearances from the ministry of environment and forests will also help in bringing down costs.

The industry association has asked for infrastructure status for affordable housing projects, key benefits of which will include ability of insurance companies and other long term loans providers to lend to affordable housing projects, automatic approval route for ECB and income tax benefits available through 80-IA and 80-IB of Income Tax Act. Apart from this, the “deduction on interest paid on home loans” under section 24 shall be increased from Rs.150000 to Rs. 300000.

The Narendra Modi government has talked about its vision for providing ‘Housing for all’ by 2022. By the time India completes is 75 years of independence, every family should have a ‘pucca’ home of its own. Currently, there is a shortage of around 18.78 million houses in the country of which a staggering 96% is in the economically weaker and low income segments, according to the housing ministry.

To improve the quality of labour and human resources in the industry, CREDAI has also requested the government to allocate more funds from Skill Development Fund for construction workers and allied skills. Skills deficit is a big challenge for the industry today. The association has also recommended 100% depreciation or investment allowance, if any company invests in skill development facility. There is also a need to build an industry government joint program for training and certification of construction workers.

Among the policy changes that would require an approval from the Parliament, the real estate regulatory bill that is pending approval from the Rajya Sabha and also the President of the country should be modified to also bring into its ambit various government agencies that are responsible for providing approvals to real estate projects. This would ensure time bound clearance of approval request, an adjudication process to address difference in interpretation of bye laws, reduce ad-hoc and arbitrary requirements that are often imposed by approving authorities and reduce corruption. India is currently ranked 194 out of 197 countries in ease of doing real estate business largely because of the delayed in getting approvals.

If the new government is able to streamline approvals, reduce interest rates on loans for consumers and to an extent for developers and also provide incentives for building affordable housing projects, its dream of providing housing for all by 2022 can be fulfilled. The real estate industry is the largest employment generator in this country after agriculture and contributes over 6.3% to the GDP. With a partnership between the government and the real estate industry, this contribution can be enhanced manifold.

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