Home loan interest subsidies are key to ‘housing for all’, says NAREDCO Prez

New Delhi: With a goal in hand to achieve “Housing for All by 2022,” the Center should consider providing full interest subsidy on affordable loans for those buying their first home, said Rajan N. Bandelkar, president of the National Real Estate Development Council (NAREDCO).

NAREDCO is an autonomous self-regulatory body under the Union Department of Housing and Urban Affairs.

“Government aims to provide housing to all Indians by 2022. In 2014 it was fair to say that by 2022 we will achieve our target… We are already in 2022 and there are still many people who stay in rented premises. In the interest of consumers, we as developers believe the Center should consider something on interest subsidy,” Bandelkar said in an exclusive interview with IANS.

In 2019, the Centre, in its budget, increased the maximum amount of interest paid on a home loan – valued at up to Rs 45 lakh – eligible for tax benefits to Rs 3.5 lakh from Rs 2 lakh under the Affordable Housing Plan, initially for one year.

Again in Budget 2020, the same was extended for another fiscal year, i.e. until March 2021.

“They have increased it to Rs 3.5 lakh while keeping the cost of ownership capped at a maximum of Rs 45 lakh. Interest on loans worth Rs 45 lakh generally exceeds the levels of Rs 3.5 lakh and there would be few beneficiaries who would be able to reap benefits under the scheme. Therefore, the Center should remove the open-heart limit for first-time home buyers,” Bandelkar said.

He further said that the Center might fear that real estate prices could soar with such interest subsidies. But this is not the case because people with their first home would apparently not intend to invest in a second.

In addition, NAREDCO will ensure all possible support that may be needed to achieve the goal of “A Shelter for All” by 2022, he added.

Regarding access to finance, Bandelkar said banks generally prefer to lend to big players.

“When the government expands the ECLGS, the interest rate drops dramatically. So for those players who are looking for affordable housing, the government has to guarantee those loans, just like the ECLGS.

Regarding capital gains in the real estate market, he said it should be at the same level as the capital markets.

“The one-year capital gains in the equity market are 10% and for real estate 20% over a two-year period. For real estate too, it should be reduced to 10%”, did he declare.

He also believes that the government should reinstate the GST input tax credit facility for the real estate sector.

“Both options should be open, and developers will choose whether to go with ITC or not, depending on their preference.”

Asked if the Center, in the FY23 budget, will continue to focus on capital spending or turn to welfarism, he said, “Focusing on capital spending is a good thing. This leads to job creation in addition to keeping money circulating. Capital expenditure is always better because we are a developing country and we have to focus on that. You see, real estate is the largest employer after agriculture and almost 250 industries depend on the real estate sector.

To deal with the Covid-19 crisis, a “booster dose” is needed on the investment front, which would somehow support, directly or indirectly, the real estate sector.

“For the real estate sector to grow, affordable housing must grow because the majority of volumes come from it. In comparison, the luxury segment is very small.

Apart from the affordable home segment, commercial spaces are also seeing a surge in demand post-pandemic.

“Almost all ready properties are rented out and the commercial sector is expected to pick up (further). Additionally, thanks to businesses via e-commerce, the warehousing business has also become attractive.”

Regarding the recent trend of backcountry warehousing business, he said it was because of the low cost of land and it helps to efficiently deliver services to the last mile.

“Because of this, rural areas have also started to witness development, job creation and income generation.”

Additionally, when asked about the potential impact of the devastating third wave of Covid on the real estate space and whether potential buyers would postpone their purchase plan, he felt there would be no significant change in demand.

“States need to offer reduced stamp duties and property bonuses… Taking inspiration from states where this has been done recently, others need to follow suit and replicate the same and take advantage of it.”

He said Maharashtra had reaped the benefits of the reduction and therefore called on the state government to reduce the stamp duty again.

In a bid to give a boost to the real estate sector, the Maharashtra government has reduced stamp duty on property registrations from September to December 2020 and from January to March 2021.

Regarding declining profit margins due to rising commodity prices, he said that so far developers have not raised mortgage rates.

“That said, real estate rates may now start to rise. Initially, we thought this was a temporary pressure on inflation and would gradually ease, but that is not the case. If steel and cement prices don’t go down, prices are bound to go up.

“In some places, some major developers have already raised prices by 5-10% in the affordable housing segment.”

Finally, for a smooth and efficient operation on the regulatory side, Bandelkar said that all approval authorities should come under RERA.

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