The recent announcement regarding the allowance of external commercial borrowing opens up substantial opportunities for developers aiming to serve the bottom of the pyramid, particularly with housing projects targeting lower-income groups. Despite these opportunities, the overall expectations from stakeholders have not been completely fulfilled.
This initiative is set to enhance capital availability for developers engaged in the low-cost housing market, leading to more timely execution of projects. Consequently, this boost in project volume is essential because, given the typically low margins in this sector, higher volume growth will be vital for making it attractive to developers.
In the Union Budget 2012-13, the outlook for the real estate sector is decidedly mixed. The government's efforts to make affordable housing accessible to a broader population has seen only partial success. However, measures such as allowing external commercial borrowing (ECBs) specifically for the affordable and low-cost housing segment will enable the sector to tap into long-term funding sources, thus easing liquidity issues that often hinder development.
Furthermore, the continuation of the 1 percent interest subvention scheme for affordable housing will enable buyers to access loans up to Rs 25 lakh. Additional funding directed toward highways and other infrastructure projects will also contribute by integrating more areas into the real estate landscape.
However, the Union Budget lacks significant measures that would directly benefit the real estate sector, as numerous industry expectations remain unmet. A primary demand from real estate companies—that an industry status be conferred upon the sector—has still not been realized. Despite these unmet expectations, the vital request for an increase in the limit on tax deductions for home loan interest from the current Rs 1.5 lakhs has not been addressed.