Clarity on affordable housing definition key to boost PMAY scheme

Infra status will help in accessing cheaper funds for development of low-cost homes

Through a host of sops for the affordable housing segment, the budget tried to iron out both demand and supply side issues restricting its growth so far. Granting infrastructure status to affordable housing, increasing the size of houses eligible for credit under the Pradhan Mantri Awas Yojna (PMAY) by about 30 per cent and extension of tax exemption granted to complete such products from three years to five years are amongst the major measures announced. Increase in refinance loans extended by National Housing Bank to individuals to Rs 20,000 crore in FY18 is another.

Sudhin Choksey, managing director (MD) & chief executive officer (CEO), Gruh Finance, says, "The PMAY scheme did not see much take off in 2016 as not more than 17,000-20,000 families got the benefit of interest subsidy under the scheme. One of the points that I have been stressing on is that the real estate developers need to be given some incentives to improve the supply situation at the low end of the market. Government has played its role by granting infrastructure status to affordable housing. But unfortunately there was no clarity in the budget speech on how they define affordable housing." Clarity on benefits to these developers under the infrastructure status too are unclear as of now.

Typically, it leads to tax benefits or concessions on funds raised and lower the borrowing costs apart from enabling these companies to raise money from insurance companies, provident funds and via foreign currency loans.

Affordable housing players such as Gruh Finance are also awaiting clarity on the extension of the PMAY scheme announced on 31st December, 2016 — particularly on the amount of annual income of the borrowers. Experts believe the same could be anywhere between Rs 12-18 lakhs.

Overall, these measures are positive for affordable housing financiers such as Gruh Finance (Gruh), Repco Home Finance (Repco), Can Fin Homes (Canfin), amongst others which could witness a further uptick in their growth going forward. Notably, given the under-penetrated markets they operate in, these companies have been growing at robust pace so far. Given the positive sops announced in the budget, most of these stocks surged 1.7 to 5.6 per cent on Wednesday. Though these companies trade at high valuations, the same appear sustainable given the high visibility on revenue as well as earnings growth going forward.

Digant Haria, analyst at Antique Stock Broking, says, "Change of home sizes from built up to carpet basis will boost them by 20-30 per cent. This was the biggest hindrance to the PMAY scheme pick up. With grant of infrastructure status to affordable housing sector, more developers will make those houses. Given the high growth prospects these stocks are unlikely to correct meaningfully from here on." Notably, easing the size norms will improve and expand the number of units eligible for the PMAY scheme.

Aspire Home finance, the subsidiary of Motilal Oswal Financial Services, is another company to benefit from these measures. Anil Sachidanand, MD & CEO, Aspire Home Finance Corporation, says, "Grant of infrastructure status to affordable Housing space will now increase supply of houses in the range of Rs 10-40 lakhs. I expect the housing prices to come down by 5-10 per cent in this space as supply will improve with mass township, large projects coming in affordable space. This will help in enabling credit at retail and the project level at lower rates thereby helping to increase the housing stock and also benefiting the end user in this segment."

Another area which needs to be addressed is the cost of land for such housing projects. "The ball now rests with the state government and private developers to bring down land costs which form 50-60 per cent of the unit cost. I think the central government has played its part," adds Choksey.