Budget 2017 will eliminate infrastructure and financing bottlenecks, but may create inventory shortage interim foraffordable housing.
- Pmay (pradhan Mantriawasyojna) Funds Allocation Has Also Seen A Sharp Increase From Previous Inr 15000 Crores To Inr 23000 Crores For 2017-2018
- The Subsidy Of Inr 2.20 Lakh For The Standard Affordable House Is Equivalent To 20% Discount On Housing Price
- Revised Subvention Period From 15 Years To 20 Years Will Effectively Mean Subsidy For Lowest Bracket To Go From Rs 2.20 Lakh To Rs 2.50 Lakh.
- Inventory Has Squeezed Has The Space Has Only Three Organized Players That Operate On Scale
- Home Loans Have Seen A Sharp Surge, As Benchmark Lending Rates Have Come Down Significantly After Demonetization
- The Outpouring Of Manufacturing And It Sectors In The Cities Of Mumbai And Pune, Further Pushes the demand for housing
The housing crisis in Mumbai is the one thing that every single person living in Mumbai will agree on. There are less houses that are usually expensive, often in the wrong places, and generally of poor quality. This crisis damages lives, breaks up families, blights employment prospects, reduces mobility and slows the economy.
The Pradhan Mantri Awas Yojana, and the budget 2017-18 has removed many financing bottlenecks in the affordable housing sector. The budget announcement, though in line with the housing crisis at hand,can lead to shortterm inventoryshortage.
So far under the scheme, more than 1.6 lakh houses are been developed. But the time will say, whether the inventory supply and fund allocation will be able to accommodate housing for all by 2022.
In the budget 2017-18 PMAY (Pradhan Mantri AwasYojna) funds allocation has also seen a sharp increase from previous INR 15000 crores to INR 23000 crores for 2017-2018. In addition to this, the infrastructure status given to affordable housing sector, will allow banks to now aggressively lend to this sector. It would not be surprising to see affordable housing sector getting funds at lowest rates in comparison to any other infra project.
Affordable housing business is low margin and has long gestation period. The infrastructure status given to this sector will allow external commercial borrowings to come in through automatic route, thus bringing down the cost of funds.
On one hand, under s.80iba five years completion period is allowed for affordable housing projects from previous three years. Thus the developers will have additional Two years to complete the projects, thus further putting pressure on the inventory at hand.
While on the other hand, the budget allocation of revised subvention period from 15 years to 20 years will effectively mean subsidy for lowest bracket to go from Rs 2.20 lakh to Rs 2.43 lakh. This is expected to stimulate the demand in an incredible way.
Demand for Subsidy
The current INR 2.2 lakh given as subsidy for a standard affordable house of Xrbia, is equivalent to a sharp 20% discount on housing price. This alone had led to recordsales jump of 2000 units from an average of 500 units in a month.
Thus the budgetary allocation will further fuel the demand for subsidy, leading to inventory shortage. The shortage is further caused as the space has only three organized players namely Xrbia Developers, Tata Value Housing and VBHC that operate on scale.
The pressure on inventory is further triggered with housing loans becoming cheaper. This is seen as the best time to apply for loans, as half a dozen PSU and Private sector banks have reduced benchmark lending rates after demonetization.
The Emerging Crisis
The infrastructure status given to the affordable housing segment coupled with the increased allocation for the Pradhan Mantri AwasYojana will significantly bring down the inventory levels.
The squeeze in inventory, can also be from the surge in manufacturing and IT sector in cities like Mumbai and Pune. The highest demand is in areas which are on the suburban transport networks sometimes as far as Dhanu in the west, Shahapur in the Central and Karjat in the Eastern zones of Mumbai.
The migrants pouring into the city has put pressure on house prices and also accelerated demand in development of right infrastructure. There are additional pressures on the reasonable costs of housing, transportation services, health provision, schools and social security benefits. Thus, making the case for affordable housing self-sufficient!
The gap between the demand for new homes and the supply coming onto the market, which we've dubbed "the new housing crisis," may cause prices to soar and price out many first-time homebuyers.
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