India's budget: What does it mean for housebuilding?
Published on 24/02/2015
India's Union Budget for 2015-16 is set to be announced on Saturday (February 28th), which is sure to have wide-ranging effects across a number of different industries. However, most experts are predicting that a large number of these changes will be seen in the housebuilding industry, which is in need of financial action after a lacklustre 2014 that is only now turning around.
A large portion of Indians - approximately 170 million - still live in 'urban slums' in the country's vast, quickly growing cities, and there is a clear need to provide affordable homes for these people. Meanwhile, home loans are often unaffordable for many Indians. These factors, and several others, are preventing Indians from purchasing homes.
Without a clear market of potential buyers, demand for housing is sure to drop. If Indian prime minister Narendra Modi wants to avoid this, his budget is going to have to contain certain items to boost the sector. Here are some of the measures that industry experts expect to be introduced on February 28th:
More affordable home loans
One of the more common predictions for the Union Budget is that the government will cut home loan interest rates to make it easier for consumers to buy houses. This in turn would increase demand for new homes, boosting the housebuilding industry. Currently, interest rates stand at between 10.15 and 10.40 per cent.
"Paying so much interest has serious implications on the family budgets of most middle-class wage earners. It is not surprising that many of them currently shy away from home loans," Kishor Pate, chairman and managing director of Amit Enterprises Housing Ltd, told the Economic Times.
The amount the rates should be reduced by is not clear. Mr Pate believes they should be decreased to between 7.5 and eight per cent, but others disagree. Navin Raheja, chairman and managing director of Raheja Developers, thinks they could be dropped to as low as six per cent. However, the consensus is that rates need to fall below eight per cent in order to boost the housebuilding industry.
Tackle housebuilding costs
The government can also take steps to make housebuilding cheaper, therefore encouraging companies to take on more projects. This could be done by regulating interest rates and the cost of construction materials in general.
Dr. Naresh Bharde, chairman and managing director of Excellence Shelters Pvt. Ltd. told Zee News: "The fluctuations in the cost of construction materials (like cement, iron, concrete, etc.) have many times led to the forceful property price rise. The government should announce some measures to regulate the prices of these materials by putting upper ceilings on their prices."
Free up land
Another key need for the housebuilding industry is land. Mr Modi has already taken steps to make it easier for construction firms to acquire plots of land by issuing an executive order, and a relaxation of foreign direct investment rules have made it easier for firms to start projects spread over a smaller area. It is thought that the budget will contain similar actions.
These could include releasing public land in larger amounts in order to encourage more developments. The government should also look into charging fees to organisations that leave plots of land undeveloped for long periods of time, to encourage them to either construct something or sell the land on to a company that will.
Boost affordable housing
There is a clear need for affordable homes in India to replace the slums that millions of people find themselves living in. Mr Modi wants to provide homes for all slum residents by 2022, an incredibly ambitious project that could cost as much as $2 trillion. If he wishes to achieve this, he will need to include a number of measures in his budget.
These include the land allocation reforms mentioned above, as well as the potential for more tax breaks. Currently, the limit for tax breaks on housing loans is 200,000 rupees (around $3,200), however it is thought that the upcoming budget will increase the threshold to 350,000 rupees.