Thursday, July 30, 2009

Homes may get more affordable

The government sops announced on Monday for lower cost housing are expected to have a significant impact on the affordability of such homes, and encourage developers to get into the segment.

Ravi Ramu, CFO of Puravankara Projects, whose subsidiary Provident Housing plans some big affordable housing projects, says the interest subsidy of 1% on loans of up to Rs 10 lakh could mean a reduction in the borrower’s EMI by Rs 650 to Rs 750, depending on the tenure of the loan. “And since the EMIs are likely to be about Rs 11,000, this is a significant reduction,’’ he says.

As per the government’s announcement, the value of the house that’s eligible for such subsidy can go up to Rs 20 lakh, but the subsidy will be applicable only on loans up to Rs 10 lakh.

The move to extend by two years the tax exemption available to builders of smaller homes is also likely to persuade builders to reduce the cost of such homes. Sunil Krishnan, president of Confident Group, estimates that it might be possible to bring down the price offered to the buyer by 5%.

The government has extended the provision of section 80IB(10) of the Income Tax Act to projects approved before March 2008 and to be completed before 2012. Earlier, the provision was limited to projects sanctioned before March 2007 and to be completed before March 2010.

The extension exempts builders from paying tax on income from the sale of houses of 1,000 sqft built-up area within 25km of municipal limits of big cities and 1,500 sqft in other areas.

Impact of Government Soaps:

Some say that very few projects were launched during the extended period, so it’s unlikely it will have a major impact.

But Confident, which did launch projects during that period, thinks they’ll now be able to offer more aggressive prices for them. That could help to drive demand and also enable completion of the projects by 2012.

The really big impact of the two measures is seen to be in “sentiment’’.

“It sends out the message that the government believes homes up to Rs 20 lakh is a separate category, that it is important to concentrate on it to provide housing to the masses,’’ says Ramu.

A number of developers have been considering getting into this segment. The latest measures might push them into it sooner than later.
The Economic Times

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