How Better Home Loan Benefits Can Boost the Post-Pandemic Economy

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In India, when traditional households think of investment, they think of real estate, gold or mutual funds. It is therefore no surprise that the real estate sector in India is expected to reach $1 trillion in market size by 2030 from $200 billion in 2021 and contribute 13% to the country’s GDP by 2020. 2025.

Given the vast potential of this sector, it makes sense for the government to encourage citizens to invest in real estate. Most potential buyers are facing financial hardship due to the pandemic, which could be significantly alleviated with higher home loan benefits, and with the 2022 budget upon us, offers the perfect opportunity.

Existing limits on home loan benefits

The Pradhan Mantri Awas Yojana (PMAY) imagined “Housing for all”. It aimed to address the urban housing shortage among economically vulnerable low- and middle-income groups and to ensure a “pucca” house for urban households by 2022. However, the pandemic has halted the achievement of this goal. In urban areas, less than 50% of homes have been sanctioned, representing 1.7 crore homes from the 2.9 crore originally committed.

Under PMAY, the Credit-Linked Subsidy Scheme (CLSS) provided home borrowers with subsidies of Rs 2.67 lakh. However, now we need better and more advantages to recreate the momentum. The National Real Estate Development Council (NAREDCO) has even called for an uncapped limit on interest subsidy on home loans.

The ₹45 lakh upper limit on the home loan does not allow borrowers to claim the full ₹3.5 lakh exemption in the current home loan tax benefits. The current paradigm requires homebuyers to take out a 90% loan on a residential property

property valued at ₹45 lakh for 20 years at 9% interest rate. Only then can the new home loan borrower fully utilize the ₹3.5 lakh deduction limit.

For context, common interest rates on home loans are around 7%. And even though the size of the units according to the CLSS definition (60 sqm carpet area) is appropriate, their prices (up to Rs 45 lakh) are not feasible in most cities, mainly in metros.

Advantages and disadvantages of increasing home loan benefits

With higher benefits, more homes will become affordable and allow economically impacted buyers to make the purchase decision. Interest rate deductions on home loans and the improved PMAY, along with tax benefits, will give the sector a much-needed boost. Real estate development plays a crucial role in job creation and economic recovery. At the macro level, an increase in home buying will lead to increased demand and supply across all sectors and impact the overall workforce. A positive policy framework will only increase real estate investments in the mass segment, thereby leading to increased state and federal taxes. Recent reductions in municipal taxes and stamp duty rates in Maharashtra testify to the positive impact such measures can bring. Tax and regulatory incentives that enable real estate investment, including support measures for developments in Tier 2 and Tier 3 cities, and measures to decongest existing cities, by allowing additional benefits for developments in the regions metropolitan areas, can play a vital role in ensuring balanced growth and density.

Policy interventions to stimulate the real estate sector

In India, Tier 1 cities remain a top choice for property investors. During Covid, the inventory of unsold real estate has fallen by 7% (through March 2021) and residential sales have increased by 9% compared to the

last year.

Some Tier 2 cities are also becoming very attractive, with an increasingly younger workforce brought about by WHF-led reverse migrations, which now enjoy higher wages.

These could be first-time buyers, who would invest in their hometown, better or more driven by the finance bill. Unfortunately, the process of accessing a home loan for Tier 2 cities remains cumbersome and the housing finance process needs to be further streamlined to make home loans more accessible in all cities.

The Finance Bill can also play an important role in improving NRI investment in real estate, as total remittances have been battered during Covid, and global markets have attracted investment in other classes of assets during the period of accommodative monetary policy. By encouraging NRI investment in real estate, particularly in products such as urban rental housing, investment in housing for the urban poor can be supported. NRI investment in real estate already stands at $13.3 billion and political benefits during pandemic-induced uncertainties can help increase investor attractiveness.

The government needs to realize that the lower slabs of home loan benefits (whether for PMAY or income tax slabs) may not currently do justice to the diversity of costs and regional or regional thinking. even municipal with a differentiated approach to property sizes and costs may be required. Immediate implementation of better differentiated benefits could lead to

substantial demand generation, as large numbers of people are still seated, even with the prevailing lower mortgage rates.

–Avishek Banerjee is the founder of Upcide.com. The opinions expressed are personal.

(Edited by : Thomas Abraham)

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