Thursday, Mar 09, 2017

Affordable Housing – An opportunity for both buyer and seller

Affordable housing is housing deemed affordable to those with a median household income as rated by country, State (province), region or municipality by a recognized Housing Affordability Index. In India, it is estimated that a large population is living below the poverty line and there is huge demand for affordable housing. Some developers are developing low cost and affordable housing for this population. The Government of India has taken up various initiatives for developing properties in low cost and affordable segment. They have also looked at PPP model for development of these properties.

The Budget 2017 provided Infrastructure Status to Affordable Housing. The budget also announced a range of policies regarding the housing sector aimed at providing demand side as well as supply side stimulus to affordable housing. Along with this, there was much needed focus on the infrastructure, digitization of transactions and rural housing.

Infrastructure Status to Affordable Housing

With the government announcing the Infrastructure status to Affordable Housing, the Indian realty sector has seen a makeover wherein now it has made easy availability of funding for affordable housing. From the Developers point of view it has made much easy for them to access funds at a lower interest rates and for longer terms, which also implies more investment from External Commercial Borrowings (ECBs) and Insurance Funds.

The demand for affordable housing in India is huge and with such a move, it can be seen that there will be more supply of affordable housing to bridge the gap. The Infrastructure status also means speedier sanctions and approvals. Thus, this will have a more positive impact on the Indian realty sector.

As per definition of RBI of Affordable housing - “Affordable segment means in the non-metros, the loan amount would be INR 40 lacs for the property value of INR 50. lacs and in the metros the loan amount would be INR 50 lacs for the property value of INR 65 lacs. There are six metros in the country: Mumbai, Chennai, Kolkata, Delhi, Hyderabad and Bangalore.”

Affordable Housing and Real Estate– Budget 2017

One of the sector which gained a lot in the Budget 2017 is the real estate sector. A Swerve of measures from those on taxation to availability of capital for developers, were announced in the Budget.

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Accordance of infrastructure sector status to this segment of real estate will help increase the much needed supply of affordable homes.

For Individual home buyers

  • Affordable Homes to get more spacious – the area measure for affordable homes eligible for property developers’ tax exemption has been enhanced. Instead of built-up area, now carpet area of 30 sq.mtrs and 60 sq.mtrs. will be considered. The 30 area limit applies in case of houses within the municipal limits of the four metropolitan cities while for the rest of the country the limit 60 will apply. Further, for taking tax exemption the period for completion of project has been enhanced from three years to five years.
  • With this move, the home buyers can expect the new launch of 1&2 BHK flats more spacious, up by size 20-30%,     considering these changes as builders get to pass on the benefit of tax exemption on the profits from projects conforming to the area norms. It is observed that affordable sectors contributes nearly 90% of the demand for new homes.
  • Change in holding period for long term capital gains – It has been decided in the budget to reduce the holding period for considering gain from immovable property to be long term from the present 3 years to 2 years and the base year shall be shifted from 01.04.1981 to 01.04.2001.
  • This can be observed as an investor friendly move, which will reduce the capital gain tax liability while encouraging the mobility of assets. Also, the financial instruments such as infrastructure bonds are also suggested in the budget in which capital gains can be invested and tax liability can be avoided.
  • TDS on rental payments – until now only the persons who are carrying on business or profession having turnover above a certain amount, were required to deduct TDS on payment of rent made. However, the budget has proposed that any individual or an HUF, who pay any rent above INR 50,000/- in a month, will have to deduct tax at source at the rate of 5% of the rent, either at the time of payment or credit. Under this provision, the tax payer will not have to obtain the tax deduction number. However, in case the owner does not furnish his PAN number, the tenant will have to deduct tax at the rate of 20%.


For Developers

  • Affordable housing to get Infrastructure Status – by adding affordable housing to the 32 sub sectors under infrastructure, accommodating real estate developers’ long standing demand for the same, these projects will have easy and low cost access to funding. Thus, this whole phenomenon can lower the cost of borrowing for builders.
  • Extension for consideration period for tax on unoccupied houses – Presently, the houses which are unoccupied after getting completion certificates are subject to tax on notional rental income. The notional rent in respect of the flats which remain unsold, shall have to be offered for tax, even if the developer has not received any rent on such flats, only after one year of completion of the project.

For income tax purposes, such flats shall be treated as self-occupied and as a tax payer is allowed to have only one house property as self-occupied, so, the other flats in possession of the developer will be deemed to have been let out and thus, notional rentals will become taxable. This provision will force developers to dispose of the flats quickly, so as to avoid paying tax on rent which he has not received.

Other Major developments

The new credit-linked subsidy scheme for middle income groups with INR 1,000 crore allocation is expected to enable access to cheaper capital. Given the government 's thrust, flow of institutional funding to affordable housing is likely to rise. With 80IB benefits continued for next five years commercially, projects are more viable." National Housing Bank has been allocated INR 20,000 crore to refinance home loans while Pradhan Mantri Awas Yojana gets INR 23,000 crore.


With the proposed infrastructure status for affordable housing and other steps, including a pledge to build one crore rural homes in two years to help provide housing for all by 2022 will help affordable home developers access cheaper institutional funds and tax exemptions to improve margins, along with increasing supply. The Budget has also offered tax incentives for affordable housing based on carpet area and not built-up space, which will help buyers get bigger-sized homes.

While there are quite a few reasons to cheer, there are some aspects on which the Budget was silent. There was no further clarity on Goods and Service Tax (GST) or tax norms for Real Estate Investment Trusts (REITs). It is indeed laudable that second-time home buyers have been discouraged, but it would have been even better if the first-time home buyers had been given interest exemption to a greater limit.  Another issue which demanded some attention was the Land Acquisition bill. Exorbitant rate of land is the biggest issue plaguing real estate and ensuring its productivity would bring greater efficiency in the real estate sector. It can only be hoped that the next budget will see some of these issues being brought to light and addressed effectively.

For More Detail:


Acquisory News Chronicle - February 2017