Budget 2019 Focus: Affordable Housing

By Aparna Dua, Senior Manager, Asha Impact

The union budget announced this week by our first full-time woman Finance Minister, Nirmala Sitharaman, showed signs of continued focus on affordable housing. Since the launch of PMAY, Affordable Housing has been given infrastructure status, the norms for applicable carpet area were increased and income definitions were redefined, which underscore the commitment of the government towards boosting the demand and supply for affordable housing.

The positives

• Higher income tax deduction on interest payable on affordable homes: As per the budget, government would provide additional tax deduction of Rs 1.5 lakhs on interest paid on home loans taken up to March 2020, for affordable homes (up to Rs 45 lakhs). This translates to ~Rs 7 lakhs benefit to homeowners over a 15 year home loan.
• Extension of 100% tax holiday for affordable builders till 2020: For making more homes available under affordable housing, the interim budget had announced that benefits under Section 80-IBA of the Income Tax Act would be extended for one more year, i.e., to the housing projects approved till 31st March, 2020. Under this section, builders of affordable housing enjoy a 100% tax holiday.
• Support to PMAY (Gramin and Urban): To provide a fillip to the PM’s flagship program, the budget sanctioned an additional 1.95 crore houses with toilets, electricity and gas connections, under PMAY Gramin. So far under PMAY Urban scheme, over 81 lakh houses with an investment of Rs 4.83 lakh crores have been sanctioned. The outlay granted for this scheme under Budget 2019 is Rs 6,853 crore as against Rs 6,505 crore in 2018–2019, nearly 5.3 percent increase.
• Introduction of the Model Tenancy Act: Currently, the rental yields do not match the high cost of houses and high property taxes, making renting unattractive for a home owner. Coupled with this, the landlord –tenant relationships have been strained and governed by archaic rental laws. The new Model Tenancy Act could change this and make the rental market more efficient and streamlined across the country.
• RBI to regulate Housing Finance Companies (HFCs): In light of the NBFC liquidity crisis, the budget also returned the regulation of HFCs to RBI from the National Housing Bank(NHB). While this move will increase scrutiny for HFCs, it will also ensure parity in regulations for NBFCs and HFCs and will also allow the RBI to provide liquidity support to ailing HFCs. This step will also ensure arms length distance of the refinancier and lender to HFCs (NHB) and the regulator (RBI).

But…Yeh dil mange more!

While home buyers have been positively affected by the reduction in repo rates by RBI (currently at 5.75%), a lot more will be required to boost the current housing demand and supply.

• The sector was also hoping for an increase in the upper limit of deductions under Section 80C of the IT Act, 1961. This section allows home loan borrowers to claim deductions on the principal paid for the house as well as stamp duty and registration charges. However, the limit of such deductions has been capped at Rs 1.5 lakhs
• Other measures such as single window clearance for building approvals would also be a much-welcomed move for the sector. Speedy and transparent approvals will help lower project costs for builders, including those focused on supplying affordable housing, and will ultimately enable them to pass on some of these benefits to home owners.

Please feel free to reach out to aparna@ashaimpact.org to share your thoughts.