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Affordability & Investment

Once this initial uncertainty over RERA and the GST gets over, the confidence level of home buyers will go up

Photo Credit : Reuters


For years, property, especially residential property has been eluding the masses because of artificial spurts in prices in the investor-driven market that made them unaffordable. The property market has now turned end-user driven with a number of reforms and home prices have declined significantly. But, the paradox is that despite a drop in prices, home sales continue to be tepid and consumers, eager to safeguard their investments, remain wary of  ploughing their money into property.

Today the affordability of homes is the highest in a decade. Home affordability is classified as the ratio of the monthly mortgage payment as a percentage of monthly income. This has significantly gone down for houses that cost less than Rs 40 lakh - Rs 50 lakh. Currently, the affordability index has dipped to 38 from a high of 57 in 2008, at the peak of the real estate slump.

Just a month before the Modi government took over in May 2014, the affordability index stood at 49 in April 2014. A series of progressive reforms by the new government since, have helped boost affordability, bringing residential property within the reach of a large number of people.

The series of reforms and policy initiatives include the enactment of the Benami Property Act, clamping down on cash transactions and introduction of RERA to regulate the property business — all of which contributed towards checking black money in property transactions, responsible for the artificial hike in property prices.

The significant reduction in home loan rates, together with the introduction of a new lending system for faster transmission of  rate cuts, granting of industry status to affordable housing, tax incentives to developers and buyers of affordable housing and interest subsidy to buyers of low-cost homes, have all helped enhance the much-needed affordability of property.

But, despite the positive sentiment created by the reduction in the affordability index, home sales have not picked up. In fact, National Housing Board (NHB) statistics for 2016-17 show a fall of one per cent in the disbursement of affordable housing units over the 2015-16 fiscal.

Today, what matters most to home buyers is the safety of their investment, especially when lakhs of home buyers across the country find their investment stuck as their homes are nowhere near completion, even years after the expiry of the delivery deadline.

According to the Q2 2017 report of global real estate advisory, JLL India, home sales reached a record low since the meltdown of 2008. New sales were down nine per cent sequentially to 22.3 lakh units — 32 per cent y-o-y.  According to global advisory, Knight Frank, the Delhi national capital region (NCR) is the worst hit, with housing sales declining by 26 per cent in H1 2017. It may take four-and-a-half years to sell the 1.8 lakh unsold units. Home buyers looking for safe investments are not taking the risk of investing in under-construction homes and are preferring ready-to-move-in homes instead.

The RERA is meant to safeguard investments of home buyers, but buyers are yet to repose their confidence in the Act because of the uncertainty and confusion surrounding RERA and the Goods and Services Tax (GST), especially since nearly a dozen states are yet to notify RERA rules. But once this initial uncertainty over RERA and the GST gets over in the next quarter and more reforms and policy measures bring down the cost of homes through a further reduction in interest rates, hike in the tax reduction limit for mortgage loans and faster approvals to speed up projects, the confidence level of home buyers’ will go up and get reflected in the increase in sales velocity.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Vinod Behl

The author is senior real estate media professional

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