Ravindra Sudhalkar, ED & CEO, Reliance Home Finance
It is no mystery that India’s growing population also needs a place to stay. As per a report, the number could be as high as 100 million affordable homes by the year 2022. Contrary to the law of demand and supply, however, this growing demand has not really translated into a huge uptake in sales of housing units. High real estate costs, a perceived lack of transparency, unclear and delayed timelines and poor service had pushed away buyers from the market. Realizing these gaps, the need for affordable homes and intent to fix the issues with both the demand & supply gap of housing units and the supply of affordable finance has been a key priority with the government.
The government’s twin-moves to offer subsidized home loans under the Pradhan Mantri Awas Yojana (PMAY) (now extended to cover MIG also) and the introduction of Real Estate Regulation Act (RERA) have not only put affordable housing on the top of agenda but has also made the job of home-buyers easier. This reformist outlook to policy and people- centricity is paving the way for pocket-friendly homes and capital that will usher in accountability to deliver and turn, the confidence of home buyers to remain invested in the property market. In fact, there is no better time than today as 12-year low mortgage rates, and government subsidies create the best-ever affordability conditions.
Aiming to benefit close to 90 percent of the Indian population across categories, the HFA scheme aims to bridge both the gap in funding;
1) with Pradhan Mantri Awas Yojana (PMAY) and Credit Linked Subsidy Scheme (CLSS) granting 3-5 percent interest savings
2) supply by according infrastructure status to affordable housing and affordable housing programme.
For the crores of a prospective home buyer, this means cheaper finance, and a chance to finally own their home. With the cost of owning a home being high and a home is a product with high emotional investment for a country like ours, access to easy finance is a sure-shot way to encourage buyers. That said, without attractive sops, even home-finance can do very little, until now. Mortgage contribution to GDP in India is a mere 9 percent, as compared to 52 percent in the US. The policies are now in place, to offer equity support to individuals via interest subsidy under PMAY and other favorable regulatory support for Housing Finance Companies (HFCs), including allowance of debt mutual funds to invest up to 40 percent of their assets in HFCs and excluding AAA rated HFCs from sector-wise cap for investments in the financial and insurance sectors.
What’s more is that the National Housing Bank (NHB), has been providing a steady source of refinancing to extend credit to the weaker section of society while also supporting, low and middle-income group buyers. These schemes now allow HFCs to access lower cost of funding from the regulator and then lend it at a fixed spread, which has been increased to 3.5 percent from the earlier 2 percent; thus aiding HFCs and banks to cater to this segment profitably. When loans to developers become cheaper, buyers are expected to benefit from the perks that get passed on to the end consumer as a result. Additionally, focus on information sharing and digitization driven by Aadhaar-based eKYC verification has also resulted in lesser costs and quicker turnaround time for home loan processing, thereby solving a genuine consumer need gap.
The further increase in eligibility under the CLSS scheme — from income bracket of Rs. 6 lakh to up to Rs. 18 lakh (for one year), will make the benefits accessible to a sizeable urban and middle-income population. Also lowering ‘Stamp Duty’ charges can make the total cost of owning a home more attractive.
An important aspect that remains to be discussed is the amount of delays in project completion which, is which is one of the major reasons contributing to the high cost of real estate in our country. With the Real Estate Regulation Act (RERA) coming into effect, home buyers interests remain protected. Studies suggest that nearly 19,000 projects (approx. 2.5 million housing units) across 27 cities will come under the purview of RERA thus, bringing in greater accountability on sources of project financing and usage of project funds. Under RERA, the scope of hiding information about land, project, construction, and progress will be eliminated thus building trust for the buyer.
This means more transparency in real estate dealings and brings in a higher level of accountability into the sector, which was arguably missing previously. This is bound to sow the seeds of ‘improving consumer confidence’ and is, in fact, bringing in the fence sitters into the sector.
RERA has tilted the balance in favor of the buyer. The establishment of a regulatory authority for real estate, compulsory registration of virtually all projects, continuous disclosure requirement by promoters, and standardization of sale agreement comforts the buyer. Additionally, transparency in fund inflow and outflows of a project avoids siphoning of funds to other projects or buying lands, safeguarding buyer’s money in a big way.
Mis-selling tactics will also slowly vanish due to RERA. Customers are now no longer in the dark about project plans, as RERA ensures that they know clearly what they are paying for as against today’s practice of saleable area. While it is possible that the cost of compliance for developers may increase property prices, increased transparency will hopefully make things competitive. One can also expect easy monitoring for HFCs, CF and partly-disbursed home loans.
Bright days have indeed arrived for affordable housing in India. Here’s a million dreams being fulfilled.