The real estate sector hopes for further government support for affordable housing and an increase in the SWAMIH fund budget

With the Union Budget 2024-25 expected to be presented next month, the real estate sector is hopeful that the interest rate incentives earlier offered to homebuyers and affordable housing developers, which lapsed in the last two years, will be renewed to boost the segment.

The real estate sector is also hopeful that the government will provide further funding under the Special Window for Affordable and Middle Income Housing Fund (SWAMIH).

“The current growth trajectory is skewed towards mid-range and premium housing. Given the specific housing needs of India’s lower income groups, this momentum cannot rely solely on higher priced homes while the supply of affordable housing continues to decline,” said Anuj Puri, CEO, ANAROCK Group.

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According to ANAROCK Research, the share of sales of cheap apartments at attractive prices after the Covid-19 pandemic decreased significantly – from over 26% in 2022 and over 38% in 2019 to approximately 20% in the first quarter of 2024. Due to Due to low demand, the share of this segment in the total housing area, supply in the 7 largest cities also decreased to 18% in the first quarter of 2024 from almost 40% in 2019.

Affordable houses for sale at prices up to ₹According to PropEquity, the number of flats of 60 lakh each fell by 4% across eight major cities to 61,121 units during January-March this year due to lower supply and higher demand for luxury apartments.

Restoring 100% tax holidays for developers offering affordable housing

To increase supply and encourage developers to build cheaper housing, the government may reintroduce the ‘100% tax holiday’ relief previously enjoyed under Section 80-IBA of the Finance Act, 2016. This section provided large tax relief for profits derived from the development and construction of affordable housing projects, experts say.

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“Initiatives such as the Credit Linked Subsidy Scheme (CLSS) under PMAY, which promotes affordable housing, demonstrate the potential for demand growth in both urban and rural areas. Additionally, the re-introduction of 100% tax exemption for developers working on affordable housing investments could address serious supply shortfalls,” said Kaushal Agarwal, president of The Guardians Real Estate Advisory.

“We expect the government to revive the Credit Linked Subsidy Scheme (CLSS) under PMAY, which expired in 2022. The scheme had earlier benefited EWS/LIG homebuyers and supported conversion of ‘kaccha’ houses to ‘pucca’ houses under PMAY ( rural area). Re-introducing 100% tax holiday for affordable housing developers under Section 80-IBA and updating the definition of affordable housing to reflect current market dynamics is crucial,” said Pradeep Misra, CMD, Rudrabhishek Enterprises Limited (REPL).

Redefine affordable housing

According to the Ministry of Housing and Urban Affairs, affordable housing is defined by the size of the property, price and income of buyers. An affordable apartment is a house or apartment with a carpet area of ​​up to 90 m2 in non-metropolitan cities and towns and 60 m2 in large cities and valued at ₹Both 45 thousand. These definitions were introduced in 2017.

Developers say the government should take a second look at home valuations within the affordable housing budget, taking into account city-specific market dynamics. According to the current definition, the size of premises is 60 sq m. the carpet surface is suitable. However, unit prices (up to ₹45 lakh) are not viable in most cities like Mumbai where property prices are high and such price caps are not viable. They argue that if the government revised the definition of affordable housing, more homes would qualify for affordable housing.

It is essential to revive the Credit Linked Subsidy Scheme (CLSS) under the Pradhan Mantri Awas Yojana (PMAY). The scheme, which expired in 2022, provided subsidy to first-time buyers of affordable homes and should be reinstated. CLSS was available on home loans for economically weaker sections (EWS) and lower income groups (LIG) for new construction and renovation of houses. They argue that reintroducing this subsidy will boost demand in the affordable housing segment.

Read also: The share of luxury home sales is now almost on par with affordable housing

It is pertinent to note here that officials of the Ministry of Housing and Urban Affairs had said earlier this week that the second phase of the Pradhan Mantri Awas Yojana (Urban) would commence soon and allocation of funds under the scheme is likely to be made in the Union Budget for the next month.

An official of the Union Ministry of Housing and Urban Affairs was quoted as saying that the PMAY-U 2.0 rules are currently being drafted and the second phase will be launched in less than a month. He said more than $1 billion worth of homes would be built in urban areas, adding that the flagship program was being modernized to help more urban families.

Increase in SWAMIH fund corpus in Budget 2024-25

Real estate market experts hope that the Minister of Finance will introduce the second tranche of the SWAMIH Fund with capital ₹50,000 crore in the upcoming budget.

Anshul Jain, CEO, India, Southeast Asia and APAC, Cushman & Wakefield, said the government should propose the second tranche of the SWAMIH Fund and an additional corpus of funds ₹50,000 crore can help solve the problem of stuck mid-range and low-cost projects. “These assets can be completed and brought to market, which will benefit society as a whole,” he added.

Read also: Real Estate Budget 2024: Focus on infrastructure, new middle class housing program

The real estate sector expects the Union Budget 2024-25 to improve liquidity, for example through increased funding for the Special Window for Affordable and Mid-Income Housing (SWAMIH) fund, which has played a key role in reviving stalled projects. Increasing the limit for deducting interest on a home loan ₹2 million to ₹Misra said the ₹5 lakh amount would significantly benefit middle-income homebuyers.

“Either allowing GST entry credit for all construction activities or reducing GST on under-construction properties from 5% to 1% and bringing it in line with ready-to-move-in properties can boost demand,” he added.