Affordable Housing: RBI ushers ‘Acche Din’?

The maiden budget of Modi government opened a jackpot for realty and Infrastructure sector. With a mammoth budget of Rs 4,000 crore for affordable housing, the real estate fraternity along with the common man got a reason to celebrate. In addition to a slew of measures announced for the long-cherished dream of affordable housing, Reserve Bank of India announced fresh incentives for infrastructure financing. The move is believed to be in line with the progressive manifesto of BJP, which spoke widely about Housing for All by 2022.

Long term financing for infrastructure has been a major roadblock in encouraging larger private sector to participate in such projects. Thus, in his budget speech, Arun Jaitley had clearly stated that banks will be allowed to float long-term bonds for lending infrastructure with minimum regulatory pre-emption such as CRR, SLR and Priority Sector Lending (PSL). And within five days after budget, his words have transformed into actions.

Until now, the definition of affordable housing included loans up to Rs 25 lakh in metros and Rs 15 lakh in non-metros. However, now the RBI has altered the definition of the affordable houses a bit. As per the changed norms, home loans up to Rs 50 lakh in metropolitan cities and Rs 40 lakh in non-metro cities will come under the purview of affordable housing.

So, how will tweaking this definition help? Well, with these attractive measures, banks will encourage home buyers to take loans. Also, with these loans, banks will be able to float infrastructure bonds up to seven years. And interestingly, the money collected under these infra-bonds will not come under the ambit of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). This implies that raising such funds will become cheaper by 1.5 to 2 per cent. At present, most of the people opt for Fixed Deposits (FD) as it offer 9 per cent returns, but if these infra-bonds are issued at 1-1.5 per cent above this, it will encourage people to go for these bonds. Also, as opposed to FD which is not used for tax savings, infra-bonds can actually help in saving taxes. Under Section 80 CCF of the Income-Tax Act, investment up to Rs 20,000 in these bonds is eligible for income tax deduction.

Secondly, to fund large infrastructure projects such as roads, flyovers, ports, etc RBI has allowed banks to extend 25-year loans. This will also benefit the developers as the repayment period will increase.

That’s not all! Though the dream of realty sector to get infrastructure status might have been quashed by the government again, the RBI has accorded the infrastructure status for affordable housing projects. The move is much appreciated as it will encourage affordable housing with easy availability of funds for the developers. And who knows this move could actually be a precursor for the real estate sector to get long desired ‘infrastructure status’ in the coming years.

Even developers have welcomed the move. Brotin Banerjee, MD, Tata Housing says, “by giving affordable housing a priority sector lending status, the regulator has finally ceded to a long-standing demand of developers. It is a welcome move, which will ease norms for banks to raise long term funds for financing affordable housing projects. The criteria defining affordable housing aptly covers a cross-section of low-income and middle-income households, and reflects the intent of the government to deliver upon its commitment of ‘housing for all by 2022’. Availability of cheaper credit will fuel demand and will help developers like us to mobilize cheaper finance for development of affordable housing projects.”

As every coin has two sides, one point that leaves a room of discussion in this announcement is that the already existing home loan rates are almost at par with base rate. The former is about 10.25 per cent and the latter is 10 per cent. Thus, as banks cannot lend below the base rate, the move will not help in bringing the property prices down.

All said and done, along with a raft of measures for affordable housing such as increased income tax deduction limit and on home loans interest payment, this can just be considered as saving grace in the current economic situation.