In a new initiative to stoke demand for home buying, the central government has enhanced the carpet area for two categories of middle income group (MIG) housing for eligibility for subsidised home loan interest rates. For those earning between `6 lakh and `12 lakh annually, homes of 120 sq metres will now be eligible for interest subsidy of 4 per cent. Earlier, the cap to avail the subsidy was 90 sq metres. For the higher category of those earning between `12 lakh and `18 lakh a year, homes of 150 instead of 120 sq metres will now qualify for an interest subsidy of 3 per cent.
The 30 per cent increase in floor area is expected to now cover almost 90 per cent of the middle class market that buys mid-sized flats in the 800-to-1,600 square feet range. Those who fall in these categories will have to pay just 5-6 per cent interest rate on loans. The catch is the benefit is only for loans up to `9 lakh for the lower MIG category and `12 lakh for the higher category. Beyond that, buyers will have to pay normal interest rates.
The aim is to move a sluggish real estate market. With more projects and builders falling into the Pradhan Mantri Awas Yojana (PMAY - Prime Minister Housing Scheme), the huge pile-up of unsold housing units will begin to disappear. Or so the government and builders hope.
Slump likely to continue
There was expectation that the festival season and the slight easing of property prices would see better sales. However, implementation of the goods & services tax and the Real Estate Regulatory Act kicking in all over the country has created uncertainty putting buyers in a wait-and-watch mode.
Since middle income categories were placed in PMAY for interest subsidy from January 1 this year, only 4,529 applications have been sanctioned and merely `93 crore disbursed as interest subvention under the scheme. It shows there is no stampede of buyers even at highly discounted interest rates.
Knight Frank Property Consultants, which tracks luxury residential prices in 41 world cities, said 19 cities showed a negative growth in luxury housing prices. Among the worst-hit was Delhi (-3.1 per cent) and Bengaluru (-0.8 per cent). It seems the slump in the residential market is here to stay for some time.
Management consultants Grant Thornton surveys showed the slowdown in the residential market would persist for the next few quarters with a turnaround expected only by the end of 2018.
The government must realise that tinkering about will not make any appreciable impact on the sluggish market. What we see is a huge crisis of confidence which the government’s small maneuvers do not address.
Home buyers shy away
Home buyers are shying away because of two concerns. One, they are not sure if their investments are safe in the hands of private developers. Dozens of builders – from Sanjay Chandra of Unitech to Mumbai’s Pujit Aggarwal of Orbit Construction – are either in jail or facing criminal prosecution for cheating buyers. Hundreds of others have mismanaged funds and have gone bust. Second, residential real estate, earlier seen a decade ago as a sure shot investment that gave galloping returns, is today showing negligible appreciation. This sector has thus eroded as an asset class for investors.
To address the situation, besides tax breaks and sops, the government must enter the market as a competitive developer offering both ‘affordable’ prices and safety for home buyers’ money. Every state has housing development authorities like the Delhi Development Authority and the Maharashtra Housing & Area Development Authority. These bodies have access to land and can execute large projects quickly. However, over the years, these bodies have been hobbled by political machinations. Today, they account for less than 10 per cent of the residential supply in the country.
If the government is at all serious about its ‘Housing for All by 2022’ slogan – which means constructing three million housing units per year over the next six years – it must drop its complete dependency on the private-sector and come in as a competitive builder. While quality is always a question mark with government schemes, the upside is home buyers are willing to trust the government with their money and reasonable time lines for delivery.
With bookings and advances, these projects will be self-financing, and some life will be breathed into the entire chain of downstream construction industry currently in a comatose state. It is time the government moved beyond slogans. [The author can be contacted at gurbir1@gmail.com]