Real estate: Market happy, but civil society finds it lacking

With schemes to improve housing for the urban poor, this year’s Budget has been largely hailed as real-estate friendly.

On March 16, finance minister Pranab Mukherjee said, “In view of the shortage of housing for low-income groups in major cities and towns I propose to allow external commercial borrowing for low cost affordable housing projects.” He proposed setting up of a Credit Guarantee Trust Fund to ensure better flow of institutional credit for housing loans, and increased provisions under Rural Housing Fund from Rs 3,000 crore to Rs 4,000 crore. It was increased lat year from Rs 2,000 crore to Rs 3,000.

The real-estate market is happy. The Budget has announced interest subvention of 1 per cent for a year on housing loan up to Rs 15 lakh where the cost of the house does not exceed Rs 25 lakh. It has also announced enhancement of the limit of indirect finance under priority sector from Rs 5 lakh to Rs 10 lakh. This implies that for low-income and medium-income groups government will pay a part of the interest, enabling cheaper loans.

Days ahead of the Budget, the real estate market was demanding industry status for itself. The National Real Estate Development Council even wrote to the finance ministry suggesting amendments and provisions within the existing tax and investment laws to promote investment in housing.

But the civil society and grassroot workers feel that permitting external commercial borrowing in the low-income housing projects will make houses unaffordable for the poor. Renu Khosla of the non-profit Centre for Urban and Regional Excellence says, “The slabs set for loans and exemptions in the current budget suggest that the government is not really looking at affordable low-cost housing for the poor.” The Budget is looking at resource generation and not how those resources are to be spent, she says. “The restrictions need to be decreased and not increased. Though I am not an economist, the provision for external commercial borrowing does not seem suitable for the poor,” she adds. The budget suggests that all demands for house can be met through external commercial borrowings. This is not correct, she says.

Last year’s budget too had intended to boost the housing sector. A mortgage risk guarantee fund was set up. But in September the government was still working on the appraisal system.