Budget 2020: Key expectations for the housing sector

The real estate market that was already reeling under substantial pressure of unsold inventory and delayed projects; has further tumbled post the NBFCs crisis in 2018. Therefore, the upcoming Budget 2020-21 must include a series of measures that address the liquidity concerns of realtors and facilitates a quick revival of the property market.

The real estate challenges and NBFC/HFC liquidity crisis have been the major contributors to the economic slowdown in the last one year. Hence to uplift the economy from the widespread slump, the government must thoroughly contemplate over the suggestions listed below and incorporate them in the forthcoming Budget 2020-21. 

1. In the last fiscal budget, tax exemption on home loan interest was increased from Rs 2 lakh to Rs 3.50 lakh for loans up to Rs 45 lakh availed by March 2020. The timeline here should be extended for the next five years without a ceiling of Rs 45 lakh. 

2. The fund of Rs 30,000 crore with the National Housing Board (NHB) for refinance and liquidity infusion in the Housing Finance Companies (HFCs) should be increased. The eligibility criteria should also be modified to offer liquidity support to smaller HFCs who are still struggling for funds. Further, the tenure of refinancing from 7-10 years should also be increased to 15-20 years to address the asset-liability mismatch issues.

 3. Access to long term funds from PF/Insurance/Debt capital market is essential to provide long-term home loans for 25-30 years. Further, to offer credit enhancement to low rated HFCs, NHB should be authorised to provide guarantee to investors to the extent of 10-15 percent of issuances with a necessary cap on the issuances based on the net financials of HFCs.

4. Credit Guarantee Fund Trust for Low Income Housing (CGFTLIH) was launched in 2012 on the lines of the popular Credit Guarantee Fund Trust available to small and micro-units. This facility is not available to lenders under the PMAY Credit-Linked Subsidy Scheme (CLSS). The objective of the CLSS subsidy and guarantee are different. While CLSS subsidy is to improve the affordability of EWS/LIG, the credit guarantee is to provide confidence and safeguard against various deficiencies in the documentation of informal segment. Therefore, the government must extend the scheme to all home loans up to Rs 10-15 lakh to EWS/LIG segment and the operation of the scheme should be simplified.

5. The annual income ceiling for Lower Income Group (LIG) is Rs 6 lakh. Income tax exemption, should therefore, be extended up to Rs 6 lakh for all.

6. Due to the on-going economic slowdown and the volatility in income, the existing housing loans of EWS/LIG are showing delinquencies. The Reserve Bank of India (RBI) is requested to permit one-time restructuring of home loans up to Rs 25 lakh outstanding as on 1st April 2019.

7. Subsidy under CLSS is available post the disbursement of home loan which is the biggest flaw. Besides, stamp duty and other preliminary expenses are also charged by lenders for the valuation of the property and legal search. On an average, a buyer has to pay around 20-25 percent of the property cost as the down payment. The high cost keeps away many aspirants from EWS/LIG category to fulfill their dream of owning a home, which, to a certain extent, defeats the purpose of Housing for all.

The above problem can be remedied if the subsidy admissible under CLSS is treated as the 'own contribution' of the eligible beneficiary under CLSS. This will categorically serve the purpose of Housing for all without any additional burden on the exchequer. In past various poverty alleviation/employment generation scheme have been functioning on the same model. 

8. The government should either waiver or reduce the stamp duty to one percent across the country for home loans up to 10-15 lakh for EWS/LIG segment.