PMAY Update in 2018: GST reduced on houses under PMAY 

Home buyers availing the Credit Linked Subsidy Scheme [CLSS] scheme under Pradhan Mantri Awas Yojana [PMAY] for purchasing homes can heave a sigh of relief. The GST council has proposed that the Goods and Services Tax prevailing on these homes will reduced.

All under construction projects which are a part of CLSS will see a 4 percent cut in GST and will be charged at 8 percent instead of 12 percent.

Buyers who do not qualify for CLSS will continue to pay the same i.e GST at 12 percent for the same house.

Low-cost housing projects, where the maximum carpet area of units is 646 sq.ft. and have been given infrastructure status as per affordable housing definition, also fall under this GST benefit.

There has also been a change in the carpet area of houses for Middle Income Group falling under PMAY. In November, the cabinet approved that for:

-MIG-I category, the unit size was increased from 90 sq.m. to 120 sq.m.

-MIG-II category, the unit size was increased from 110 sq.m to 150 sq.m.

* Update as of June 12, 2018*

Earlier the eligibility of carpet area was 1291 sq. ft. for MIG-I and 1614 sq. ft. for MIG-II. This has now been enhanced to 1722 sq.ft. and 2153 sq.ft. 

The reduction in GST along with the interest subvention scheme will result in a significant amount of saving for buyers while purchasing homes under PMAY-CLSS. These segments of home buyers are price sensitive and even a small change makes a considerable impact on their budget and hence influences their decision to buy a home.

This scheme is expected to convince developers to pass on their savings in terms of Input Tax Credit on construction, raw materials to home buyers, reducing the actual rate they have to pay for their home.

 

How Budget 2018 Impacts Indian Realty Sector

Budget 2018

The presentation of the Finance Budget in India is always a highly anticipated event in the financial calendar. This year’s budget was the last one the current government will present until the general elections next year. Hence, most people expected Finance Minister Arun Jaitley to announce a sops-filled budget. Yet contrary to popular expectations the common man didn’t have much rejoice about in the budget. Beyond the bare minimum for individual taxpayers, budget 2018 did have a few welcome announcements to boost affordable housing, improve air connectivity across the country and allocating more funds for infrastructure development.

Here’s where the Real Estate could benefit from the 2018 finance budget:

Budget 2018
Budget 2018

Affordable Housing

A dedicated Affordable Housing Fund (AHF) in the National Housing Bank will be established to boost the affordable housing sector. The Bank will be funded from priority sector lending shortfall and fully serviced bonds authorized by the Government of India. Additionally, recapitalisation will allow banks to lend 5 lakh crore and attract more developers to this segment, which many have been shying away from. An estimated 51 lakh houses will be built in rural areas in 2018-19. This is a huge boost for low-income housing and achieving the vision of ‘Housing for all by 2022’. However, Pradhan Mantri Awas Yojana (Urban) got a measly 7.64% hike in the allocation at Rs 6,505 crore for 2018-19 as compared to Rs 6,042.81 crore in 2017-18.

We have fixed a target that every poor of this country may have his own house by 2022.”

Smart Cities

Mr. Jaitley announced that 99 cities have been selected with an outlay of Rs 2.04 lakh crore to implement various projects like Smart Command and Control Centre, Smart Roads, Solar Rooftops, Intelligent Transport Systems and Smart Parks under the Smart Cities Mission. At Rs 6,169 crore this is a 54.22% hike as compared to Rs 4,000 crore in 2017-18 Budget. Various schemes associated with the Smart Cities initiative have also received budget hikes such as Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and Swachh Bharat Mission (Urban).

Circle Rates

In major cities the circle rates were increased and were more than the market rates. The resulting gap between the two rates was considered as income for the buyer and seller. In this budget, the Finance Minister has provided relief as regards the circle rates by allowing a 5% gap between the market and ready-reckoner rates. This could potentially revive secondary market transactions which affected by the turbulence generated by demonetisation and lack of liquidity.

Infrastructure

Budget 2018 has allocated Rs. 5.97 lakh crore for infrastructure spending to ensure India’s infrastructure meets global standards. 35,000 kms of roads and highways to be developed under Phase 1 of Bharatmala scheme. Pay-as-you-use system for toll payments will be introduced. UDAN scheme has been announced to connect 64 unconnected airports across the country. Rs 11,000 crore has been allocated to Mumbai rail network and Rs 17,000 crore for the Bengaluru metro. These infrastructural developments when they happen will definitely boost the surrounding localities and the real estate sector by extension.

Cryptocurrency & LTCG

In the 2018 Budget, Mr. Jaitley has stated the government does not recognise cryptocurrencies will do all it can to discontinue its usage. This essentially highlights cryptocurrency as the ‘new black money’ and could find its way into real estate transactions. The government is determined to ensure this does not happen especially in the aftermath of demonetisation.

It has been proposed that long term capital gains (LTCG) over Rs. 1 lakh will be taxed at 10% without indexation benefit. This is expected to force investors to amend their investment preferences and real estate funds may benefit from this development.

The government will take all measures to eliminate the use of these cryptoassets in financing illegitimate activities or as part of the payments system,”

 

Besides these major announcements which are sure to make a significant impact on the Indian Real Estate sector, the budget also announced plans to establish schools of planning and architecture to be set up in the IITs and NITs. This will boost the urgent need for design professionals. Many industry experts feel Budget 2018 could have done more in terms of reviewing FSI and density norms as well as taxability of REIT structures. However, there is enough in it to revive buyer interest and boost a sector that has is slowly emerging from a long sluggish period.

What did you expect from Budget 2018? Tell us in the comments below.

Pradhan Mantri Awas Yojana- Credit Linked Subsidy Scheme: Explained

1. Pradhan Mantri Awas Yojana (PMAY) caters to urban centres and was launched in the year 2015 with an aim of providing ‘Housing for All by year 2022’.

2. In 2017, the scope of the PMAY was broadened by the introduction of the Credit Linked Subsidy Scheme (CLSS) . Under the scheme the Government of India is offering interest subsidy on home loans taken by eligible citizens for buying or constructing a house. Furthermore,the scheme brings down the outstanding loan amount right at the time of loan origination.

3. It is for the first time under the scheme that any national government has recognized the Middle Income Category (MIG) as the ones needing some sort of financial support in their quest for a home.

4. The Credit Linked Interest Subsidy Scheme (CLSS) for Middle Income Group widens the scope of people who qualify as beneficiaries. People earning above Rs 6.00 lakh and up to Rs 18 lakh per annum are eligible for interest subsidy on housing loans.

5. The following percentage of interest subsidy is available if the criterion are met:

– 4% on housing loans of up to Rs 9 lakh of those with an income of INR 6 to 12 lakh a year (MIG 1 Category)

– 3% on housing loans of up to Rs 12 lakh of those earning INR 12 to 18 lakh per annum (MIG 2 Category)

6. Irrespective of one’s amount of loan, as long as the unit sizes comply with the norms laid down, the beneficiaries will avail the interest subsidy under the CLSS up to the limits described above. The norms for the unit sizes are: 90 sq. m. for MIG1and 110 sq. m. for MIG 2. These are carpet area of the unit that is being purchased.

7. The interest subsidies will bring down the Equated Monthly Installments (EMI) of beneficiaries by a certain amount per month. The government will provide direct transfer of these savings over the life of the loan as a one-time benefit at the time of loan origination. Assuming the normal housing loan rate to be fixed at 8.65% on a 20 year loan, the potential savings are:

-Rs 2.35 lakh on a loan of Rs 9.00 lakh in the MIG 1 category

-Rs 2.30 lakh on a loan of Rs 12.00 lakh in the MIG 2 category

8. The home loan that one avails to qualify under the scheme will be for tenure of 20 years or lower.

9. The criteria to qualify under the PMAY CLSS scheme are: a) one should be a first time home buyer; b) the income should be as per the aforementioned limit and c) the dwelling sizes should comply with the norms.

10. The interest subsidy is applicable only to the amount limit mentioned in the scheme. If the loan amount is more, interest on the remaining amount is applicable as per contract.

 

Rohan Abhilasha under constructionRohan Abhilasha under construction

Rohan Abhilasha under construction
Rohan Abhilasha under construction- these homes qualify under PMAY

Rohan Abhilasha under constructionRohan Abhilasha under construction

Rohan Abhilasha under construction
Rohan Abhilasha under construction- these homes qualify under PMAY

 

 

 

Has The Death Knell For Affordable Housing Around Mumbai Been Rung?

PMs Housing For All by 2022

—Views of Vivin Mathew and Shafique Ansari – Directors, Irasa Housing

Last week the Maharashtra State Government passed a Government Order (GO) that will kill all affordable housing around Mumbai. The GO states that the three main areas around Mumbai where affordable housing is currently being developed have now become Green Zones. The areas of Shahapur, Palghar and Raigad, where most homes are sold in the sub Rs. 25 lakh range, have now become No-Development Zones except for very few slivers of land.

In the last 15 years these three areas have, estimates say, delivered around 5 lakh homes in the sub Rs. 25 lakh range. No other area close to Mumbai hass been able to produce as much supply of affordable housing as these. Now only those projects which already have approval will come up. No new projects in these areas will be approved. With lower supply, expect prices to dramatically go up in the next few months.

Prior to this GO being issued, the areas of Shahpur, Palghar and Raigad were Free Zone where a developer could buy land and use it for residential or non-polluting industries. These were the only areas around Mumbai where land was available at less than Rs. 1 crore per acre. Therefore it was the perfect feedstock for affordable homes. Now that is gone.

Beaches add to Palghar's appeal
Beaches add to Palghar’s appeal

Home prices will go up all over Mumbai

Over the next few months, we expect all developers that have approved projects around Mumbai in these areas to tighten prices knowing that with lower supply coming in, prices are bound to increase.

The prices of the tiny slivers of land in these areas where development is still allowed will dramatically go up. Again leading to increased prices of homes.

Prices within the far flung suburbs of the city of Mumbai will also tend higher. Areas like Panvel, Thane, Kalyan, Virar will all see a hardening of prices as the competition from the lower priced homes substantially reduces.

All this means that the lowest priced homes around Mumbai will now be in the Rs. 30 lakh range. For someone to be able to afford that, they will have to earn at least Rs. 50,000 per month.

Land prices will increase

As Affordable Housing developers seek to stay in business, they will start trying to buy land within the development areas in Mumbai’s far flung suburbs. This will ensure that land in those areas will go up almost immediately. Again that will mean no more affordable housing around Mumbai.

Raunak Group's Raunak Heights is an example of affordable housing
Raunak Group’s Raunak Heights is an example of affordable housing

Increased Job Losses

Another unfortunate aspect of this order will be a loss of jobs. The only sector of Mumbai’s housing market that has been able to keep its head above water in the last few years has been Affordable Housing. This sector, directly and indirectly, employs close to 10 lakh individuals. Now many of these people will be unemployed once the projects they are currently working on come to an end.

Puzzling Move

In a city where it is said, “It is easier to find God, than a home”, it is indeed puzzling that a move like this has been taken by the state government. This will make it even more difficult for those at the lower end of the social pyramid to be able to afford a home.

Our Prime Minister has said he aims to provide “Housing for All” by 2022. As a result there are many wonderful schemes like the Pradhan Mantri Awas Yojana which gives a government subsidy to people looking to buy their first home. But this move by the Maharashtra Government flies in the face of all these efforts. One hopes that the government realises this and rolls back this move. Else be prepared to see a big increase in prices of real estate in Mumbai in the next few years.