Budget 2021

A brick-by-brick approach to ‘Housing for All’

Rashmi Pratap Mumbai | Updated on February 01, 2018

The year was 1999 and the Indian real estate sector had been in the doldrums following the South Asian financial crisis as well as pressure on the Indian currency and high interest rates. Between mid-1995 and 1998, prices had fallen a bruising 40 per cent and a recovery was nowhere in sight. It was in this scenario that then Finance Minister Yashwant Sinha presented a Budget that went a long way in resurrecting the sector.

In Sinha’s words: “The fiscal incentives are focussed at the middle-class investors wishing to purchase a dwelling unit.” To begin with, he more than doubled the tax deduction on interest on housing loans for self-occupied houses from ₹30,000 to ₹75,000, besides changing foreclosure laws to promote housing mortgages. He announced an amendment that would treat housing projects as infrastructure to give a fillip to construction activities in smaller towns.

“It was a visionary Budget with measures that were required to kickstart the market. It laid the foundation for other budgets to improve upon and solve the housing crisis in the country,” says Samir Jasuja, founder and MD of PropEquity.

Sell to recover

To develop the primary and secondary markets for housing mortgages, Sinha announced simplification of legal provisions for foreclosure and transfer of property through amendments in the National Housing Bank Act. As a result, housing finance institutions could recover their overdues by sale of property that was deemed as security for the loan granted.

“Post that, the mortgage industry opened up in real estate. And the market grew in the real sense from 2000 till 2005, helped by low interest rates and housing finance companies. Mortgage industry players like HDFC, ICICI propelled the market,” says Pankaj Kapoor, MD of real estate consultancy, Liases Foras.

“By making changes in foreclosure laws and providing a liberal tax treatment programme on NPAs for housing finance companies, he paved the way for improving demand in the housing segment,” says Anshuman Magazine, Chairman, India and South-East Asia, CBRE.

Sinha had also announced the Golden Jubilee Rural Housing Finance Scheme of NHB to target 1.25 lakh units in 1999-2000. He strengthened housing finance companies through a liberal tax treatment of income on non-performing assets. Moreover, commercial banks could lend up to three per cent of incremental deposits for housing.

Younger buyers

With the increase in tax exemption, the end user was encouraged to invest. “A lot of people moved in to buy properties when the market was coming out of a recession. The pricing was very efficient. With measures like increased tax exemption and sops to housing finance companies, the average age of the consumer reduced to 35 years,” Kapoor said.

Till 1998, to enjoy a tax holiday under Section 80IA of the Income Tax Act, the built-up area of dwelling units had to be under 1000 sq feet. He raised the limit to 1500 sq ft, expanding the exemption limit. National Housing Bank even reduced interest rates for small borrowers.

“The new NHB scheme for interest rate concessions for small borrowers was targeted at making housing available to the lower segments of society. The first seeds were sown to make ‘owning a home’ reality for all,” says Magazine.

Jasuja says the steps were similar to those being taken by the Modi Govt to promote housing. “Never before had such drastic measures for housing had been announced.”

Earlier, people would purchase property post-retirement and the number of transactions was limited. “These measures created an efficient phase where houses were affordable. Yashwant Sinha gave an impetus to the market when it was needed the most,” he says.

Within a year of this Budget, housing sales began to gather pace and by 2001-02, the sector was at its peak — both in pricing and sales growth. With real estate facing turbulent times again now, the sector needs similar path-breaking measures to revive.

Published on February 01, 2018

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