Housing needs funding leg up

Vinod Behl

Considering that an estimated investment of $2.3 trillion is required for housing development to meet the objectives of ‘Housing for All’ by 2022 and the funding from banks, housing finance companies, private equity funds, is highly inadequate, a sound strategy with new policy initiatives is required to give a boost to funding of housing, especially affordable housing that forms a major chunk of the housing requirement.

A sum of around $1 trillion was invested in real estate between FY08 and FY 14 and 72 per cent of this investment came from household savings. Funding from PE and capital markets which accounted for up to 10 per cent in FY18, dropped to 3-4 per cent in the past few years. Banks and HFCs, despite showing strong growth, lagged behind in overall credit growth.

In this backdrop, there is a need to create a strong financial support system. And for that, there is a need to scale up 'Dedicated Affordable Housing Fund', created by the government in 2013 for which only Rs 12,000 crore and Rs 6,000 crore, respectively were allocated for urban and rural housing over FY14 & FY15. Besides hiking allocation, there is a  need to simplify lending procedures and engage private sector in housing growth meaningfully.

Need for cheaper funds

This and several other suggestions by NAREDCO (National Real Estate Development Council) form part of its pre-budget memorandum to Finance Ministry. There is a case for access to long-term, cheaper funds like pension, insurance and provident fund for housing finance, on the lines of Singapore and USA, to tide over the problem of asset liability mismatch between short term borrowings and long term lending. And for this purpose, investment in HFIs should be an eligible investment for pension, insurance and provident funds.

Over the past couple of years, the RBI has cut interest rates by about 200 bps, but the full benefit has been denied to property buyers. as banks have been lagging in transmission of home loan rates to consumers. In that backdrop, it’s all the more important that housing finance should be available at cheaper rates. And for that to happen, HFCs must get opportunity to get low-cost funds. This could be made possible by making banks increase their allocation for housing from present 3 to 5 per cent of their incremental deposit. And this additional 2 per cent incremental allocation may be earmarked, strictly for affordable housing projects.

A case for REITs

Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), already given go-ahead by SEBI, could play a significant role in accessing cheaper funds for housing as world over, these are effective source of funding housing, due to various fiscal concessions and incentives provided by government. In order to promote REITs and InvITs, their treatment should be equvalent to listed entities. Holding period for units of business trust to qualify as long- term capital asset, needs to be reduced from 36 months to 12 month (Section 2 42A)