Policy changes that could boost affordable housing

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Thousands of youngsters whose folks cannot afford decent homes live in extremely poor neighborhoods. But policymakers in Budget 2016 can take progressive steps to facilitate entry of these kid in safer localities with better schools.

Rohan Agarwal MD Geopreneur GroupRapid development and rising urban population has led to a huge housing problem which needs to be tackled with suitable planning by the authorities. Urban population is slated to grow up to 45-50 per cent by 2050, signifying the need for resolving the urban housing equation. No other component is more composite than affordable housing in urban scenario of India. Demand for affordable homes stands more than 5 million at present, and of the 5, 00,000 homes to be delivered, large chunk is to be constituted by affordable homes. The ridiculously low stream of affordable homes advocate that there are issues ailing the sector which need to be handled by the government.

In order to find long-term solutions to the ailing mass housing section, there is a need for alterations in government’s policies and outlook. The initial step would be to set up real estate venture trusts i.e., investment trusts that possess and manage commercial properties and mortgages and other real estate assets on behalf of shareholders.

The previous budget sessions offered tax benefit on home loans, which would be reaped primarily by developers in tier II and satellite towns of metro cities. However, as the lion share of the affordable home supply comes from the top metros, there was a need to incentivize developers by offering tax exemption on low income homes to be developed in the outskirts of metros.

One of the chief proposals to incentivize affordable housing is that the government should offer land acquisition at a rate lower than market rate. To make it easier for builders to lend from banks is also at the top of the list. Developers would be better off to develop affordable homes if the public and private corporation is fortified and commercial borrowing becomes easier.

The government can also consider raising the home loan limit for affordable homes in the metros and tier I cities, which will give a definite push to both supply and consumption of affordable homes.

There is also a need to review the FSI (Floor Space Index) policy and make appropriate changes to boost affordable housing in mega cities like Mumbai. About 50 per cent of the population in Mumbai stays in slums. In cities like Delhi also, about 84 per cent of people who are homeless, are self-employed. Since they are an essential part of India’s development story, regardless of location categories, we need to create affordable housing even in the premium locations of mega cities. It is required to bring these service providers nearer to service consumers.

Affordable housing will go up extraordinarily if the government brings back the 1 per cent interest subsidy for houses that cost below Rs 50 lakh in Tier 1 cities. The interest rates are in double digits at the moment. To make housing inexpensive, the government should now form an environment for rate cuts. To inspire real estate players to construct rental housing, the government should also amend the tax rules on rental income. Currently, the government treats the rental income from residential units as regular income and this discourages investment in the housing segment.

There are many issues which are continuously hounding the real estate sector. Precise alterations in fiscal policy can mend the prospects of the real estate sector and reasonable housing in particular.

 Author's note: The author completed his MBA in Finance and Marketing in 2012 and founded the the Geopreneur Group at the young age of 24. He won the "Young Achiever Award" and the "Emerging Developer of the Year - Residential" at National Awards for Excellence in Real Estate & Infrastructure 2015.

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