NITI Aayog has suggested a complete list of financial help for developers as well as those purchasing affordable houses, so that the construction of these houses can be expedited and they can become accessible to the common people. The Commission says that by 2050 the urban population in the country may increase by 50% or about 850 million, whereas in 2021 it was 35% or about 50 crore. The Commission has again proposed to give 100% tax exemption to developers involved in affordable housing projects, so that they start more such projects. Apart from this, it has also suggested tax exemption on capital gains and rental income for investors associated with Real Estate Investment Trusts (REITs), so that it becomes easier to raise money for affordable housing and the cost of funds can be reduced.
In a comprehensive framework to promote affordable housing, the Commission said in the report prepared jointly with the Ministry of Housing and Urban Affairs that the re-introduction of Section 80-IBA will provide strong financial relief to developers, make it easier to complete projects and increase participation of private companies.
Why is there a shortage of affordable houses?
Section 80-IBA for affordable housing was applicable from June 2016 to March 2022. According to the report, the shortage of affordable homes in India is not only due to high land prices and low supply, but also due to the weaknesses of the systems related to home loans and funding. It said both home buyers and builders face a number of constraints, making affordable housing a risky and low-profit sector. A real estate investment trust (REIT) is a trust or company that owns, operates, or raises funds for rental income properties.
Commission’s suggestions
The Commission has suggested that the maximum limit of loan under the Credit Risk Guarantee Fund Scheme for low-income people be increased to Rs 40 lakh, so that the sale of affordable houses can be properly covered. Apart from this, the Commission has said that the National Housing Bank (NHB) should be allowed to issue tax-free bonds under Section 54EC of the Income Tax Act. This money can be used to fund affordable housing projects for the Economically Weaker Section (EWS) and Low Income Group (LIG) at affordable rates. The report also says that charges for change in land use should be waived off, provided only affordable houses are built on that land and at least 50% of the prescribed Floor Area Ratio (FAR) is used. Along with this, it has been suggested to exempt the houses built under Pradhan Mantri Awas Yojana Urban 2.0 and other houses included in affordable housing projects from stamp duty and registration fees.
In a comprehensive framework to promote affordable housing, the Commission has proposed a number of relief measures for developers and buyers of affordable homes. This includes suggestions like reintroducing 100% tax exemption to developers involved in approved affordable housing projects and increasing the loan limit under the Credit Risk Guarantee Fund Scheme to Rs 40 lakh. The report further said that these steps will significantly reduce the minimum price of affordable houses and will make these houses more affordable for the common people and more attractive for builders.