Anuj Puri, Chairman, Anarock Group
In the backdrop of all-time high home sales of 4.77 lakh units in 2023 across seven top cities, residential real estate industry in general and residential real estate in particular has a positive outlook for 2024 . However this year general elections will have a significant impact on the demand and growth of residential real estate.
The real estate industry invariably presents the Finance Ministry with a very ambitious wish list every year before the annual Union Budget. Industry status for the housing sector and single-window clearance for housing projects are standard asks and remain in place this year, as well.Since the pace at which the issues that the real estate sector faces get resolved,is generally quite slow, these expectations haven’t changed much . There are reasonable expectations for the interim budget, which will be unveiled before the general elections.
It is necessary to increase the Rs 2 lakh tax rebate limit on home loan interest rates to at least Rs 5 lakh under Section 24 of the Income Tax Act. This could stimulate the housing market in a robust manner, particularly the budget homes segment, which has seen a decline in demand since the pandemic.
Given how badly the epidemic affected this segment’s target audience, affordable housing has been severely affected . Anarock Research finds that the previously much-touted budget homes category saw a decline in overall sales – to approximately 20% in 2023 from over 30% in 2022, and nearly 40% in the period before the pandemic.Not surprisingly, this segment’s percentage share of the total housing supply in the top 7 cities also fell to 18% in 2023 from nearly 40% in 2019.
Several interest stimulants that were offered to developers and consumers in this market over the years have expired in the last one to two years. It is imperative to revive and extend significant benefits, such as tax breaks, to encourage developers to construct more affordable housing and to make it possible for customers to acquire such homes.
The Ministry of Housing and Urban Poverty Alleviation defines affordable housing as being determined by the buyer’s income, the size of the property, and its price. Affordable housing is defined as a house or apartment valued up to Rs 45 lakh, with a carpet area of up to 90 square metres, located in non-metropolitan cities and villages, and 60 square metres in large cities.The definition provided by the central bank, however, is based on the loans that banks provide to individuals so that they can purchase apartments or build houses.
The government needs to take a hard look at adjusting the qualifying cost of properties within cities’ affordable housing segment. Although the units’ defined size of 60 square metres is reasonable, the price cap of Rs 45 lakh make them unaffordable to a huge part of the target clientele.
For example, the price cap of Rs 45 lakh in a metropolitan city like Mumbai is unrealistic and irrelevant and needs to be increased to at least INR 85 lakh. For other large cities, the price limit should be raised to at least Rs 60–65 lakh. With this price adjustment, more homes will come within the reach of buyers and more buyers will be able to take advantage of such government subsidies, reduced GST rates at 1% without ITC, etc.
Addressing the land shortage for this vital housing segment is also necessary. Certain land parcels that are owned by Indian Railways, Port Trusts, Department of Heavy Industries, etc., may be released by the corresponding government agencies. When this land is released at a low cost specifically for affordable housing, it will also significantly lower overall real estate prices