Housing sector on good wicket

By Ramnath Subbu

MUMBAI, JULY 14. The housing industry is among the few to have bucked the trend in an otherwise lacklustre economic scenario. The upbeat mood is due largely to proactive decisions taken on the policy front. Flexible financing with lower interest rates has made possible for greater activity in this sector. Higher disposable incomes, realistic property prices and rapid urbanisation have all contributed to the stepped up activities in the property segment.

India continues to face an acute shortage of housing units. Based on the last census, the housing shortage is estimated at 19.4 million dwelling units in 2001. With demand far exceeding supply, prospects for this sector seem buoyant. The industry has been witnessing an annual growth of 30 per cent and is expected to grow at 20-25 per cent in the years ahead driven by the retail segment. This could come from lower interest rates, tax concessions for both borrowers and construction firms and repeal of ceiling laws in several States.

Over the last three years, the Government has been supporting the industry and encouraging individual home ownership by providing various fiscal incentives in the budgets. In budget 2001, an increase in the tax exemption limit for interest on housing loans for self-occupied houses from Rs. 1 lakh to 1.50 lakhs was announced. In 1999-2000, the limit was Rs. 75,000 and in 1998 it was Rs. 15,000. The budget has also announced an increase in the rebate on repayment of principal under Sec. 88 to 30 per cent in certain cases.

Again, long-term capital gains on transfer of capital assets are now exempt from tax if they are invested in another house even if the taxpayer already owns a house.

Further, the ULCRA (Urban Land Ceiling and Regulation Act) which was perceived a stumbling block by most builders was repealed.

Importantly, interest rates which were as high as 16-18 per cent a few years ago are today at an all time low of 11-12.5 per cent. According to Mr. S. S. Joshi, vice president, sales and marketing, Tata Housing Development Company, ``Interest rates have never been so low earlier. Add to this a variety of `goodies' which banks and housing finance companies are offering; the options before the customer seeking housing loans are many.''

The lull in real estate prices has made housing more affordable and rekindled demand. ``The real estate industry, it seems, is witnessing a resurgence which it has not seen since the peak in 1995,'' said Mr. Joshi.

Incidentally, the slump in real estate prices has to a large extent driven out speculators and brought into the market the `genuine' buyers. These prospective home owners are very particular about loan repayments and that completes the virtuous circle for the industry with recovery being good for the housing finance companies.

In the last few years, property prices in metropolitan and other major cities have declined by a wide range depending on the area and the location; the fall varying from 10 per cent to 50 per cent.

The other steps that can be initiated include the doing away with land ceiling laws by the remaining States and abolishing the stamp duty and other provisions that make conveyancing (buying and selling of property) both cumbersome and expensive.

``What is required is a uniform stamp duty for property conveyance across the country because at the moment, too many back-door methods are being used.'' said one industry spokesperson, adding, ``The industry wants infrastructure status which will allow access to cheaper funds. Generally bank lending rates could fall further in line with foreign bank rates."

HDFC, the leading player in housing finance, is growing at around 25 per cent though this is a come-down from the 40-45 per cent levels a couple of years back.

Now most players in housing finance are eyeing prospective homeowners in the lower income segment. The logic could be that the market would grow faster if the base is increased.

HFCs have set up their networks all over the country to cater to various income groups. The largest factor would be the value added services provided by these companies - HFCs not only help the individual in selecting the property but also take upon themselves the onus of the legal work. While currently, the housing finance sector is dominated by only a handful of players, others have entered the fray. Tata Housing, ICICI and GIC Housing are already making strides in this sector.

HDFC's loan book increased to Rs. 13,224.67 crores from Rs. 10,063 crores in the previous year. The net increase of Rs. 3,161.66 crores is after taking into account loan repayments amounting to Rs. 2,401.07 crores.

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Section  : Business
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