When the realty check fails

Last week, Reserve Bank eased the lending norms for affordable housing

The housing and real estate segment was lamenting the lack of any tangible benefits in the Union Budget 2015-16 presented a week ago. However, last week, the Reserve Bank of India (RBI) announced a repo rate cut of 25 basis points, and eased lending norms for affordable housing. Welcoming these measures as important steps, the real estate sector has hailed it as a ‘signal of the right intent.’

The listless real estate sector has been facing a liquidity crunch, and the budget had little for the ‘affordable housing’ segment or measures to take it forward. The only reference was the intent of providing six crore units of urban and rural housing under the ‘Housing for All by 2022’ scheme and some clarification regarding Real Estate Investment Trusts (REITs).

REITs present a huge opportunity for the Indian commercial real estate market, and offer developers an exit opportunity in order to monetise their real estate.

“The support of governing authorities to help ensure a less restrictive REIT regime and favourable tax transparency status can be a critical factor in the development of a vibrant REIT sector in a new market,” said Shishir Baijal, CMD, Knight Frank India, a realty consultancy.

“While there is a huge potential, how much and how soon this is harnessed will depend on the overall economic momentum and the acceptance of REIT as an investment vehicle.”

“It will be interesting to see how the public-private-partnership model is revitalised to make it easier for the private sector to participate, especially in the affordable housing segment where the intervention of the government is required for obtaining land parcels,” said Brotin Banerjee, MD and CEO, Tata Housing Development Company.

The cut in repo rates by 25 basis points that followed the budget is a meaningful step to help home buyers. “This will benefit home aspirants to a great extent since loans will become cheaper,” Mr. Banerjee said.

Developers were eagerly hoping for interest rate cuts to spur home buying. Sanjay Dutt, Executive MD, South Asia, Cushman & Wakefield, said, “the increase in service tax is set to cause an increase in costs of buying and unnecessarily prolong the rebound of housing sales. Even while the magnitude of the rate cut is 25 basis points, the move will build confidence of developers and buyers alike that there are more rate cuts in the offing, provided of course that inflation maintains its downward trend or remains stable.”

Further, in a move to buoy the affordable housing market, the RBI late last week allowed banks to include stamp duty, registration and documentation charge to the cost of the house for the purpose of calculating the LTV (loan to value) ratio, provided the cost of the unit does not exceed Rs.10 lakh.

This is to address the economically weaker sections (EWS) as there has been a continuous decline in home loans in this category.

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Printable version | Aug 5, 2020 7:36:40 AM |

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