Article by Rajesh Krishnan in Economic Times (Founder & CEO of Brick Eagle)
Indian real estate sector over the last year has been impacted by triple jolts of demonetization, GST and RERA. By revising the definition of carpet size under CLSS of PMAY, government has attempted to provide some solace.
Industry has warmed up to the announcement in anticipation of this help promoting demand and reduce developers’ unsold inventory. However, the issue of affordable housing supply for the Economically Weaker Section (EWS) and Lower Income Group (LIG) is yet to be addressed.
As per the revised norms, housing units up to 150 sq metre or around 1600 sq ft will be eligible for subsidy of about Rs 2.5 lakhs. Assuming sales rate of Rs 2,000-5,000 sq ft, the ticket size of such units will range between Rs 40 – 100 lakhs. This effectively allows more buyers belonging to Middle Income Group (MIG) avail interest rate subvention and should help promote demand for larger sizes apartments, which is bulk of the unsold sock in the market today. A revival in real estate sector clearly has multiplier effect on economy and employment generation. Hence we welcome the move by government.
But the moot question remains on achieving housing for all by 2022 and that remains a far-fetched dream since most policies are aimed at perking up the demand without sufficiently addressing the supply side issues for EWS/LIG housing units priced at Rs 5-35 lakhs.
Be it the Rs 2.5 lakh PMAY subsidy or lower home loan rates backed by NHB refinance, most of these policy measures are aimed at helping customers, boosting demand further. When it comes to EWS/LIG housing, demand is not the problem. Policy measures should be directed towards increasing supply of affordable homes.
Affordable housing sector remains capital starved. India needs $30 billion each year for funding Affordable housing projects at early stage. Despite Infrastructure status, Banks are yet to start lending for Affordable Housing projects in the scale that is required. To my mind, the only way to motivate banks to lend for affordable housing projects is by categorizing these loans as Priority Sector Lending (PSL).
As per the prevalent RBI definition, a Rs.28 lakhs bank loan to a customer buying Rs. 35 lakhs home qualifies as PSL. But a project loan from a bank lending to the same project that is producing these homes, is not considered PSL. For a start, RBI can catalyze affordable housing supply by classifying affordable housing project loans as PSL, if every single unit in the project is priced at less than Rs.35 lakhs. I believe this move alone can result in a few lakh homes being produced each year.
To conclude, the government has tried to address the demand side issues further by offering credit linked subsidy scheme to buyers with higher ticket size based on enhanced carpet area. However, we await more policy measures aimed at supply of affordable housing for EWS/LIG families.