Housing for all by 2022? An ambitious scheme in India is showing early signs of success
For many of us the term “affordable housing” might sound hollow in this day and age of overpriced houses that stretch the finances for most of us. Indeed, buying our own home can take a significantly long period of time. However, beyond exorbitantly priced luxury homes in India’s metros, affordable housing is a new wave sweeping India’s real estate sector. Aimed at housing for the masses, the Narendra Modi government’s plans could indeed change the face of home ownership in India.
Ambitious targets by 2022
On June 9, 2014, President Pranab Mukherjee gave a speech to Parliament that had an ambitious target. He said:
“My government is conscious of the fact that our urban infrastructure is under severe stress. Soon, 50 per cent of our population would be residing in urban areas. Taking urbanisation as an opportunity rather than a challenge, the government will build 100 cities focused on specialised domains and equipped with world class amenities. Integrated infrastructure will be rolled out in model towns to focus on cleanliness and sanitation. By the time the nation completes 75 years of its Independence, every family will have a pucca house with water connection, toilet facilities, 24×7 electricity supply and access.”
Affordable housing for the rural sector has been a priority since the launch of the Indira Awas Yojana in the 1980s. Under the current administration, rural housing is covered under the Ministry of Rural Development’s Pradhan Mantri Awas Yojana (Grameen).
Affordable housing for the urban sector was approved by the Union Cabinet in June 2015 and is covered under the Ministry of Housing and Urban Poverty Alleviation. Thus, the urban initiative is now two years old, and on June 26, the ministry sent out a tweet to mark this fact.
Affordable urban housing
As per the tweet, the government has approved investments of Rs 1,10,753 crore in affordable urban housing sector in the last two years. Indeed, since June 2015, on various occasions, the government has backed affordable urban housing.
In his speech on December 31, 2016, Prime Minister Modi announced a slew of measures including interest subvention of 4% for loans up to Rs 9 lakh and 3% for loans up to Rs 12 lakh taken in 2017. The number of houses being built for the poor, under the Pradhan Mantri Awas Yojana in rural areas, was increased by 33% and interest rate subventions were announced for affordable rural housing as well.
The 2017 Union Budget also provided many incentives for the real estate sector. The most important of these incentives was the provision of infrastructure status to affordable housing. This would enable real estate sector players to take loans at lower rates for affordable housing projects. Lower rates of borrowing would help keep costs in check for the real estate builders helping them in keeping affordable housing projects profitable.
A multi-tiered approach
The Prime Minister Awas Yojana has ambitious targets. According to its website, these are:
- Affordable homes with water connection, toilet facilities, 24×7 electricity supply.
- Two crore houses to be built across the nation.
- Targeting the Lower Income Groups and Economically Weaker Section of society, basically the urban poor, by the year 2022.
- Two million non-slum urban poor households are proposed to be covered under the mission
To achieve these targets, the government is offering generous sops to those seeking to buy an affordable house, mainly in the form of lower interest rates under the Credit Linked Subsidy Scheme. Under this scheme, those who belong to the economically weaker section and lower income group get an interest rate of 6.50% for loans up to Rs 6 lakh, middle income category 1 gets an interest rate of 4% for loans up to Rs 9 lakh, and middle income category 2 gets an interest rate of 3% for loans up to Rs 12 lakh. These interest rates are significantly lower than market rates, which are all above 8%.
Affordable housing on a roll
The affordable housing initiative is aimed at homes with a value of approximately Rs 20 lakh. Homes with these values are typically located on the outskirts of metros and Tier-1 cities. They are aimed at first-time home buyers in the middle to lower income category.
The government’s attempt has met with initial success. Home finance companies are lining up to provide loans under the Pradhan Mantri Awas Yojana and real estate builders are launching projects across cities. A report in the Business Standard on Monday stated that the National Housing Bank – which registers, regulates and supervises housing finance companies – has got six applications in the past six months from entities who want to start new housing finance companies. The news report also quotes various builders launching new projects under affordable housing.
Similarly, an Indian Express report earlier this month states that pure-play affordable housing finance companies have seen their assets under management [the total market value of assets that a financial institution manages] rocket 50% in the past financial year to Rs 23,000 crore as on March 31, 2017, as compared with Rs 15,000 crore as on March 31, 2016.
Positive intent, positive outcomes?
The Pradhan Mantri Awas Yojana has huge targets ahead of it that present huge opportunities as well. There is more than just housing at stake for the government given that the construction sector is a huge generator of employment. Jobs created under the Pradhan Mantri Awas Yojana would be much welcome in a situation where employment appears to be slowing down.
Housing finance companies and real estate builders have already seen a slowdown in the luxury housing segment. Affordable housing could provide a shot in the arm, at least for real estate developers with serious intentions.
Finally, for the middle to lower income categories, the Pradhan Mantri Awas Yojana provides a significant opportunity for their dream to own a home. This dream could well be closer to reality.
GST impact on real estate: What will change when you go to buy a house?
The switchover to the GST regime is undoubtedly one of the biggest tax reforms in post-independence India. From July 1 2017, GST effectively cuts through a confounding Gordian knot of taxation complexity in the country. In other words, it replaces the multiple taxes levied by the central and state governments and will become subsumed of all the indirect taxes, including central excise duty, commercial tax, octroi tax/charges, Value-Added Tax (VAT) and service tax.
GST has been predominantly conceptualized around a ‘One Nation, One Tax’ philosophy and will:
- Help eliminate the previous cascading tax structure
- Ease compliances
- Create uniform tax rates and structure, and
- Help in reducing additional tax burdens on consumers.
However, the biggest game changer in GST is the introduction of Input Tax Credit, whereby credits of input taxes paid at each stage of production or service delivery can be availed in the succeeding stages of value addition. This makes GST fundamentally a tax only on value addition at each stage.
This means that the end consumer will thus only bear the GST charged by the last dealer in the supply chain, with set-off benefits at all the earlier stages. To ensure that manufacturers, developers and service providers pass on the benefit to the final customer, the Government has included an anti-profiteering clause in the GST bill under section 171 of GST law. This clause clearly states that it is mandatory to pass on the benefit tax reduction due to input tax credit to the final customer.
Impact on Residential Real Estate:
To say the least, the Indian real estate sector has been going through significant transform in the recent times. The recently implemented Real Estate and Regulation Act (RERA) has already started addressing the issue of non-transparency and affixes a level of accountability on real estate builders and brokers which is unprecedented in the history of the Indian property sector.
For the residential real estate sector, the implementation of GST will definitely be a positive sentiment booster among property buyers. GST may not be instrumental in bringing down the prices of residential real estate over the short term. However, it will benefit all the stakeholders of the residential real estate sector, as the perception of the sector will improve on the back of a simplified tax structure and accountability being fixed at every stage.
Benefit to Property Buyers:
A simple and transparent tax applied on the purchase price is the biggest take- away for property buyers. Under the GST regime, all under-construction properties will be charged at 12% (excluding stamp duty and registration charges). It will not apply to completed and ready-to-move-in projects, as there are no indirect taxes applicable in the sale of such properties.
VAT (with rates differing from one state to another) and Service Tax together accounted for 7-9% of the ticket price for a residential property, which is 3-4% lower than the GST rate. However, due to information asymmetry, consumers were largely unaware of how VAT and service tax are calculated – definitely, the entire tax calculation was too complex for laypeople to understand.
Any real estate product comprises of three expense components, namely land, material and labour or service costs. VAT is calculated on material cost, and service tax is calculated on labour and service cost. It is very difficult for buyers to ascertain what components were included for calculation of VAT and service tax.
The implementation of GST makes the calculation much simpler, since the buyer has to pay only a single Goods and Services Tax. Also, the builder must pass on the benefit of the price reduction he enjoys due to input tax credit to the buyer.
Impact on Affordable Housing:
The affordable housing sector, which is a major thrust area of the incumbent Government and is the cornerstone of its ‘Housing for all by 2022’ vision, will not be impacted by GST. This has been clarified by the announcement from the Finance Ministry, which indicates that there will be no tax under GST for housing projects which comes under the affordable housing scheme.
Benefit to Developers:
In the previous tax regime, real estate developers also grappled with the challenge of multiple taxation. On various construction materials they purchased, builder paid customs duty, central sales tax, excise duty, entry tax, etc., thus creating various instances of multiple taxation. The cumulative burden eventually got passed on to the buyer.
GST will eliminate all the other taxes, and the benefit of being able to claim input tax credit can also improve developers’ profit margins.
Major construction materials have not seen a major change in tax rate.
- Cement will be taxed at the rate of 28% under GST, which is higher the current average rate of tax around 20-24%
- Iron rods and pillars will be charged at the rate of 18%, which is similar to the average rate of 20% under the old taxation regime
- Paint, wall fittings, plaster, wallpaper and ceramic tiles will be taxed at 28%, which is also similar to the previous average rate of 20-25%
- Sand lime bricks and fly ash bricks will be taxed at 5%, which is lower than the previous rate of 6%.
However, the marginal change in the percentage of these variables will make a huge difference as transportation and logistics costs reduce in the single taxation system. While there might be marginal impact on the real estate sector in the near term, we are definitely looking at a significant improvement in buyer sentiment and perception of this sector. Developers too will find the GST regime much simpler to work with, with the benefit of input tax credit being an added advantage.
Now, Affordable Housing is Driving Home Loan Growth
After years of selling pricey luxury homes that boasted amenities like signature golf courses and jacuzzis, builders finally seem to be moving toward modest apartments to suit middle-class pockets. A clear indicator of this is the sharp uptick in home loans driven by sales of houses costing below Rs 30 lakh.The cue for builders to change tack came from this year’s Budget, which offered tempting tax and interest concessions for the affordab le housing segment.
This year, almost half of all bank credit comprised loans to housing, given the almost non-existent corporate loan demand. According to HDFC chairman Deepak Parekh, the corporation’s January loan applications rose 21% over December. February applications were another 24% higher, and March was 44% more than the previous month.
“What is driving this growth is not high-value property but affordable homes, considering that the corporation’s average loan size is Rs 25.6 lakh. This is the first time in several quarters that HDFC’s average loan size has dropped from Rs 26 lakh,” he said.
Property experts said Ahmedabad was the largest contributor of such homes (costing less than Rs 30 lakh), followed by Pune (up to Rs 50 lakh) and areas in the Mumbai Metropolitan Region like Badlapur, Ambernath, Vasai-Virar, Dombivli, Kalyan, Panvel, Ulwe and Taloja.
Housing finance providers are now expecting the affordable home segment to grow at 25% given the subsidy under the Pradhan Mantri Awas Yojana (PMAY). The scheme, available until December 2017, provides 4% subsidy on home loans of up to Rs 9 lakh for those with an income of up to Rs 12 lakh per year, and 3% subsidy on loans of up to Rs 12 lakh for those earning up to Rs 18 lakhper year.
Pankaj Kapoor, MD of Liases Foras, a real estate research firm, said on a quarteron-quarter basis, maximum sales growth (31%) was reported in the affordable segment (properties priced below Rs 25 lakh), while the ultraluxury segment witnessed a 4% decline in sales. The October to December 2016 period saw a slump following demonetisation, but demand between January and March 2017 was healthy .
Developer Niranjan Hiranandani said sales at his Thane project for flats below 600 sq ft had been good. “There will be a further surge when more projects start hitting the market and people start getting the tax benefits,” he said.
Mortgage company Indiabulls Housing told investors that for a borrower seeking Rs 24 lakh, the effective rate he or she will pay works out to only 0.42% after factoring all tax breaks and subsidies.
“Effective home loan rate in the mid-income affordable housing segment is at near-zero levels. With rental yields at 3.2%, home ownership is very affordable and much cheaper than renting a house,“ a company official said.
According to Subhash Chennuri, senior consultant with consulting firm FSG, more finance is being made available for housing units which are as low or even below Rs 12 lakh.
The PMAY scheme comes on the back of the Union budget proposals. Besides, developers who build affordable homes are exempted from paying taxes on their profits for five years starting 2016 instead of three years.These are for 300 sq ft homes in the four metro cities and 600 sq ft in non-metro areas.
HOUSING FOR ALL – GST on sector will make houses more affordable
Housing prices are likely to fall by up to 5% following the implementation of Goods and Services Tax (GST) across India from July. The GST Council fixed GST at 12% on the housing sector with the allowance of credits for taxes paid on inputs like cement, steel, paints, and other items. Because of the input credit, the net taxes on housing will likely fall.A simple calculation shows that the price of a house costing Rs 1 crore may reduce by Rs 3-5 lakh. The net price in the affordable housing segment of up to Rs 30 lakh at Rs 3,500 per square feet built-up area should fall by 5%.
The service tax–at the rate of 4.5% on the final price–that buyers pay while taking possession in the preGST regime will not be levied once the GST comes into force across the country. Therefore, tax consultants and realtors say that fixing the GST rate at 12% is a customer-friendly decision and will lead to reduced tax liability or be tax neutral. “The actual tax incidence under GST at 12% will match or be lower than the existing multiple indirect taxes on the sector,“ said the chairman of National Real Estate Development Council (Naredco), Rajiv Talwar, who is also the CEO of DLF Ltd.
This should give room for developers to cut the prices on housing units, Talwar said. The GST rate, he said, will help the affordable segment the most once this omnibus tax reform kicks in.
Talwar says that GST at 12% for construction of projects for sale to homebuyers with the allowance of credit of taxes paid on inputs will be a much-necessary shot in the arm to speed up growth of this sector. He said the GST rate for work contracts, which will also be offset by input credits, will provide for a seamless and simplified tax policy.
In a statement, Naredco said it recommended a GST rate between 9% and 12% for the real estate sector.Naredco submitted a white paper to the government with detailed analysis of tax rates at multiple points and their implication, the statement said.
Talwar said, “The heavily taxed real estate sector welcomes a single, stable GST rate of 12%, inclusive of the value of land and with full input tax credits.“
Parveen Jain, president of Naredco, says: “GST will bring a transformational shift for the Indian industry, including the real estate sector, as it will subsume more than 16 major taxes and levies into a single consolidated tax.“
Getamber Anand, chairman of Credai and CMD of ATS Infrastructure, said that if the system is implemented properly, customers of normal projects costing up to Rs 6,000 per square feet will benefit from GST pegged at 12%. However, premium projects may have to pay higher taxes, Anand said.
Manoj Gaur, vice-president of Credai and MD of Gaursons, said that if the input credits are allowed properly, the GST rate is for the housing sector is favourable to buyers.
Suresh N Rohira, partner (Indirect Tax & GST) at Grant Thornton India LLP, said that at 12%, the GST regime would certainly bring down the tax liability in the affordable housing segment. He said that the taxes on inputs for construction are more than 12% of the final price. But if a developer is working with a high margin, which is the case in premium projects, the net tax would remain significant.
Priyajit Ghosh, partner (indirect tax) at KPMG India, said that 12% GST on construction industry will make the sector better off. Because of input credit, the net tax on finished products will have a downward pressure.
At present, a developer pays excise tax and VAT on inputs like cement and steel at 27.7% and 18.1% respectively, which vary from state to state, a Crisil report said. Now, cement and steel will be taxed at 28% and 18%, respectively, under GST.Similarly, other inputs like paint and white goods are going to be taxed at 28%.
But the final product–a housing unit–will be taxed at 12% with the allowance of credit against taxes paid on inputs. But as 12% tax will be levied on the entire cost including land, the amount will be sufficient to provide for input credit, Ghosh says. For normal houses costing up to Rs 6,000 per square feet, GST at 12% on a finished house or apartment will effectively reduce the final tax liability to near zero, as the developer will take the credit for taxes he paid on inputs. At the same time, the buyer will not have to pay the service tax, at the rate of 4.5% of the price of the house. This will reduce the cost of acquisition of a house.
In some cases, even input credit could be more than the GST to be levied on the finished product, but a developer can claim a maximum credit to the extent of the GST he would have paid on the finished product.
Take a simple example: A developer is set to complete a housing project through works contract awarded to a contractor. The cost of construction is around Rs 2,000 per square feet, the going rate in the market for average quality. The contractor will collect a tax at the rate of 18% of amount on which he is completing the work. In this case, he will collect a tax of Rs 360 on the `per square feet’ rate of construction (Rs 2,000 per square feet) from the developer.
If the developer sells the house at Rs 3,000 per square feet for built-up area, which is the going rate for the affordable segment, he will pay a tax at 12% on the final cost. In this case, it will also be Rs 360 per square feet. Therefore, his fresh tax liability would be nil. If other expenses and tax paid is included, the developer could have claimed more. But under GST, he can claim only up to the fresh tax liability.
But if the product is in the premium segment, the entire input tax credit is not sufficient to bring down the fresh tax liability to nil. The going rate for premium construction is at around Rs 5,000 per square feet. The net tax collected by works contractor would be Rs 900 per square feet from the developer. But while selling at Rs 10,000 per square feet, he must pay Rs 1,200 per square feet.
Therefore, after adjusting against the taxes on input, he will have to pay Rs 300 per square feet, or 3%, which he will recover from the customer. But as the developer will also pay taxes on other expenditure, the net tax liability at 12% GST on finished product will be very small.
Now you can use 90% of your EPF to buy a home. Keep these 5 conditions in mind
Labour Ministry has said that an individual can now use their Employee Provident Fund (EPF) account money to finance their home buy.
Subscribers of Employees Provident Fund Organisation (EPFO) will now be able to withdraw 90% of the EPF amount for the down payment and pay EMIs of their home loan through the account.
A senior official on Monday had said that over four crore subscribers of EPFO will be benefitted with this move.
According to a PTI report, the retirement fund has amended this new scheme by inserting a new paragraph — 68 BD — to the Employees’ Provident Funds (EPF) Scheme, 1952.
The section 68BD will come as sub-section under 68B. The 68B talks about the withdrawal from the Fund for the purchase of a dwelling house/flat or for the construction of a dwelling house including the acquisition of a suitable site for the purpose.
However, 68BD benefits come with conditions. Here are five conditions which need to be fulfilled if you want to use the EPF amount for buying a home:
1. An EPF subscriber should be a member of a co-operative or housing society with at least 10 members to withdraw up to 90% from the fund for the purchase of a dwelling house or flat or construction of a dwelling house and acquisition of the site.
2. An EPF subscriber applying under this window should have contributed to the fund for at least three years.
3. The facility will be available only once to every subscriber during his or her lifetime.
4. The rule applies to all those who together with their subscriber spouse have at least Rs 20,000 in their accounts.
5. As per this window, EPFO will provide monthly installments for repayments of any outstanding payment or interest may also be paid from the amount to the government, housing agency, primary lending agency and banks concerned, an official told PTI.
Signature Global Singum Affordable Retail Shops Walkthrough at Sector 103 Gurgaon
The Full List Of 98 Smart Cities That Are Coming Up Across India
The government on Thursday released a list of 98 cities, including 24 state capitals, which are to be developed as smart cities.
In the first year, the government would select 24 cities that would be developed into smart cities. The list of smart cities was unveiled by Union minister Venkaiah Naidu. Speaking on the occasion, Venkaiah Naidu said that the “prime motive behind the smart city project is to enhance urban life.”
“The smart city mission is very practical and realistic. We need public’s participation,” Naidu said. “Smart cities need smart people, we need people’s co-operation to move forward in our mission,” Venkaiah Naidu added.
Patna, Kolkata and Bengaluru are missing
UP, with 13 cities, leads the states in number of smart cities. However, Patna, Kolkata and Bengaluru are missing from the government’s smart city list.
Here is the list of states and number of cities that have been nominated by the government:
Andaman and Nicobar Islands
1) Port Blair
Dadra and Nagar Haveli
Daman and Diu
1) Navi Mumbai
4) Greater Mumbai
2) Greater Warangal
1) New Town Kolkata
* Jammu & Kashmir has asked for more time to decide on the potential cities
* 12 cities have been shortlisted from Uttar Pradesh against 13 cities nominated for Smart City project.
Provident Fund Rules Likely to Be Changed: 10 Facts
The government is likely to introduce a Bill to amend the Provident Funds and Miscellaneous Provisions Act in the Budget session of Parliament, with the objective of bringing more workers under the social security benefit, said Rajesh Bansal, additional central provident fund commissioner.
Here is your 10-point cheat-sheet:
1) At present, firms with 20 or more employees come under the purview of Employees’ Provident Fund Organisation (EPFO), which administers the contributory provident fund scheme. The Bill may propose to halve this threshold limit to 10.
2) The Budget session of Parliament begins from February 23.
3) The Provident Fund Amendment Bill may also propose to reduce or waive the mandatory provident fund contributions by employees in certain cases based on the financial position of the sector.
4) EPFO has a base of over 5 crore subscribers and receives over Rs 70,000 crore as incremental deposits every year. The retirement fund body manages a corpus of nearly Rs 6.5 lakh crore.
5) Last year, Finance Minister Arun Jaitley in the Budget had announced that an employee earning up to Rs 15,000 per month will have to mandatorily maintain an provident fund account. Earlier, if the employee earned above Rs 6,500 per month, it was voluntary to have a provident fund account. This is expected to bring nearly 50 lakh additional formal sector workers under the ambit of the social security schemes of the retirement fund body.
6) The government had also fixed the minimum pension for EPFO subscribers at Rs 1,000 as well as increased the maximum insurance limit for provident fund subscribers to Rs 3.6 lakh, from Rs 1.56 lakh. This hike will benefit over 30 lakh pensioners.
7) Every month, 12 per cent of an employee’s basic salary goes into the provident fund account and the employer matches the contribution. Out of the employer’s contribution, 8.33 per cent goes into the Employees’ Pension Scheme.
8) Housing Scheme: In a recent note, the Prime Minister’s Office had asked the retirement fund body to promote affordable housing for its subscribers and use its funds for the purpose. According to the note, deployment of 15 per cent of EPFO funds as loan for low-cost housing would generate a credit flow of Rs 70,000 crore and can create 3.5 lakh additional low-cost homes.
9) The Labour Ministry is keen on a scheme under which EPFO subscribers could withdraw their PF deposits to make part-payment of the total cost of the house, reports said. At present, EPFO subscribers can withdraw money from their PF accounts for buying houses only after contributing for a period of five years.
10) Inoperative Accounts: Nearly Rs 27,000 crore of money is lying ‘inoperative’ with the retirement fund body for lack of accurate details of workers. A special facility has been launched on EPFO’s website to enable members to identify and trace out their old accounts marked as inoperative. PF accounts that are inactive for 3 years stop earning interest.