According to industry estimates, the housing shortage in India has touched 18.78 million units. As per the latest Economic Survey, there is a shortage of nearly 20 million homes in India. So, supporting the supply side is as critical as stimulating the demand side. Realising about this widening gap, the Government had rolled out an ambitious programme, Housing for All by 2022, targeting the urban areas. Rehabilitation of slum dwellers through public private partnership projects, promotion of affordable weaker sections through credit linked subsidy and promotion of housing for urban poor are the elements of this initiative. The scheme will cover 4041 towns in three phases.
But Government effort alone cannot fill this gap. It has to provide an enabling and empowering environment where private players can come in, with ease of doing business, and support the agenda. The Budget 2016 has constructive measures to improve the supply and demand side.
The budget announcement on allowing 100 % deduction for profits to housing projects building homes up to 30 sq metres in the four metro cities and 60 sq metres in other cities is likely to spur supply of affordable houses, demand for which makes for almost 90 % of the demand for homes in India.
Anyway is Residential Construction expected to dominate the industry: it was the largest market in the Indian Construction Industry during 2011-2015, and is anticipated to remain relatively sizeable over the next five years, with a 30.6 % share of the industry’s total value in 2020. Construction activity in the Residential Market will be in general supported by rapid urbanisation, population growth, and positive regional economic conditions. Along with that the Government’s efforts to clear slum areas by 2022 and reduce the country’s housing deficit will also help the market grow.
Builders and real estate experts say the exemption for affordable housing projects would bring in a 15-20 % upside on profits after paying the MAT tax for a real estate developer building such a project, making it easier for the developer to attract foreign and domestic investment for housing projects.
In the budget, the construction of affordable houses up to 60 sq metres under any scheme of the Central or State Government including PPP Schemes will be exempt from service tax.
First home buyers will get deduction for additional interest of for loans up Rs 3.500.000 (USD 50.000) sanctioned in 2016-2017, where house cost does not exceed Rs 5.000.000 (USD 75.000).
Experts expect this measure to push developers to redeploy money into building more affordable housing. It addresses supply side concerns on the housing front and will bring much greater supply, spur construction activity and employment connected to it. Anyway 90 % of demand for housing is in this segment.
A challenge for the industry might be, not to lobby with states to increase density norms to achieve 30 sq metres and 60 sq metres of housing. In Haryana, for example, the density norms are so low that housing of 30 sq metres is not possible at all. So density norms area need to change and density to increase for housing projects, to increase the number of these kinds of homes.
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