To incentivise first-time homebuyers, the government should extend the Credit Linked Subsidy Scheme (CLSS) for at least three more years until 2027 in Budget 2023, says Pradeep Aggarwal, founder and chairman of Signature Global Group.
CLSS for the Middle Income Group (CLSS for MIG) was announced by Prime Minister Narendra Modi on December 31, 2016. It was initially launched for 12 months until December 2017 and later extended until 2022. It has been granted a two-year extension until 2024.
“The CLSS has been extended until 2024 and should remain the focus of the government for at least another three years. It should be extended until 2027,” said Aggarwal, whose housing company is active in the Delhi-National Capital Region building affordable housing.
“Along with this, the government should consider increasing the definition of affordable housing to homes in the price range of Rs 75 lakh to Rs 1 crore for the segment to remain viable,” he said.
CLSS covers MIG beneficiaries seeking housing loans for acquisition/ construction of houses (including re-purchase) from banks, housing finance companies and other notified institutions.
For the MIG I category, which consists of individuals with an annual income of Rs 6-12 lakh, an interest subsidy of 4 percent is provided on a loan of up to Rs 9 lakh. For the MIG II category, which is made up of individuals with an annual income of Rs 12-18 lakh, an interest subsidy of 3 percent is given on a loan of up to Rs 12 lakh. The benefits are typically in the Rs 2-2.5 lakh range.
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The carpet area of a housing unit was initially revised to up to 120 sq m and up to 150 sq m for MIG I and MIG II respectively in November, 2017 and further enhanced to up to 160 sq m and up to 200 sq m for MIG I and MIG II, respectively in June 2018.
Aggarwal, whose company specialises in affordable and mid-segment housing, had received approval from capital markets regulator Securities and Exchange Board of India in November for an Initial Public Offering (IPO) to raise up to ₹1,000 crore to clear debt and pay for land acquisition costs. In July 2022, Signature Global filed its share-sale prospectus with SEBI to launch its IPO.
“There are currently 1.80 lakh affordable homes in Tier 1 and Tier 2 cities. We require 25 lakh affordable homes per year. The affordable housing story is here to stay for at least a decade and will drive real estate growth. While there is demand demand at the bottom of the pyramid, supply in the affordable housing segment is miniscule,” said Aggarwal.
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The definition of affordable housing also needs to be revised. In metropolitan cities, affordable housing is classified as a dwelling unit with a price ceiling of Rs 45 lakh and a carpet area of 60 square metres (645.8 sq. feet) or less. While the price band may be fine for Tier 2 and 3 cities, it cannot be applied to metro cities because of exorbitant land prices and construction costs.
“It is a big challenge to deliver affordable housing in this price bracket in Metro cities. Budget 2023 should increase this limit to at least Rs 75 lakh to Rs 1 crore,” said Aggarwal.
The government should consider providing infrastructure status to the real estate sector considering the increase in interest rates and funding becoming expensive for real estate developers.
“The affordable housing segment had received infrastructure status way back in 2017 but the benefits of this has not percolated to the ground. Project-level funding, benefits that are currently available to road projects such as financial institutional funding etc is not available to real estate developers,” he explained.
“As a real estate developer we were hoping to get easy access to capital through that route but were unable to get access due to the NBFC (Non-Banking Financial Company) crisis. It is for this reason that we decided to list in the open market for better and cheaper access to capital which we hope to utilise for expansion purposes,” he said.
Affordable housing is a segment which has more than 95 percent of housing demand but only 5 percent of developers are active in the segment.
“Bringing affordable housing to Tier-1 and Tier-2 cities is a big challenge. When you wish to grow you require easy access to capital, get brand equity through the IPO route. Once we list, more companies would find it easier to trade land parcels with us and help us get more opportunities,” Aggarwal said.
Aggarwal also said Budget 2023 should consider widenening the scope of the stuck assets funds or SWAMIH fund.
“Funding should not only be granted to projects that are stressed. Even projects that are on the verge of becoming stressed should be brought under its ambit. Only those on ventilator support should not be rescued,” he said.
In December 2022, the government put an additional Rs 5,000 crore into the SWAMIH Invest Fund-I to help the stressed realty investment platform achieve its final close at Rs 15,530 crore, its manager SBI Capital Ventures had said.
In November 2019, the central government launched the SWAMIH Investment Fund to help complete over 1,500 stalled housing projects, including those that have been declared non-performing assets (NPAs) or had been admitted for insolvency proceedings.
The move was to help 4.58 lakh housing units across the country. Only RERA-registered projects with a positive net worth are to be provided funding.
As far as the rental housing scheme is considered, the government should improve the funding model to make it viable and attractive for developers.
“Private developers may construct housing but a rental yield of 2 percent is not at all attractive or viable. The government should rope in financing institutions to provide easy access to funding and subsidies should be provided. If funding is not provided, the builders cannot run rental housing by themselves,” he said.
Considering the increase in construction costs and high Goods and Services Tax rate on cement and steel, the government should considering bringing it down to single digits to help ease the pressure on developers, he said.
“Currently production of affordable housing units has become unviable. A GST relaxation for cement and steel in single digits is the need of the hour. For cement a developer pays close to 28 percent in GST and for steel around 18 percent. For services, a 12 percent GST is levied. This should be rationalised across the board to 10-12 percent he said.
To boost demand among first-time homebuyers, the government should consider raising the tax deduction limit for home loans to Rs 5 lakh from Rs 2 lakh and reduce the tax rate to increase buyers’ disposable income.
The Delhi-National Capital Region-based Signature Global commenced operations in 2014 through its subsidiary Signature Builders with the launch of the Solera project on 6.13 acres of land in Gurugram, Haryana.
"We have grown our operations over the years and in less than a decade, and as of March 31, 2022, we had sold 23,453 residential and commercial units, all within Delhi-NCR region, with an aggregate saleable area of 14.59 million square feet," the company’s share-sale prospectus, said.
Realty firm Signature Global, which plans to launch a public issue soon, has sold properties worth Rs 1,330 crore in the first half of this fiscal year.
The company achieved sales bookings of Rs 2,590 crore in the entire previous financial year. Credit rating agency Icra has mentioned this in a report while reaffirming its rating with a stable outlook on Signature Global's term loans.
