‘Over 1 crore flats lying vacant in India; crime to keep assets without utilisation’: G Hari Babu
‘Over 1 crore flats lying vacant in India; crime to keep assets without utilisation’: G Hari Babu
Launches of high-end residential units priced above Rs 1.5 crore skyrocketed by a staggering 1,000 per cent between 2019 and 2023, according to property consultancy firm Anarock. In the meantime, new launches of units priced below Rs 75 lakh, including affordable housing, remained stagnant in the country’s top seven cities. In a conversation with AGGAM WALIA, National Real Estate Development Council (NAREDCO) National President G HARI BABU delves into the growing trend of premiumisation in the real estate sector even as the high-demand affordable housing segment appears to be short on supply. Among other things, Babu throws light on the influx of high net-worth individuals (HNIs) and institutional investors in the residential real estate space, and what can be done to spur growth in affordable housing.
There has been a noticeable trend of developers gravitating towards big-ticket launches in metro cities. Why is this happening?
For example, if you take Hyderabad in 2022, 5,300 affordable homes or flats were sold. But in 2023, the reduction is by almost 1,500 flats to only 3,800 affordable flats sold. At the same time, the luxury segment has grown...people’s wealth has increased. But in terms of wealth distribution, we have a scary scenario. For example, 31.5 per cent of wealth is concentrated with the top 1 per cent of the population, and another 31.5 per cent is concentrated with 9 per cent. So, all the growth is limited to the top 10 per cent segment, which amounts to roughly 14 crore people...and most builders are trying to cater to the top 10 per cent of the population.
There have been some concerns that the influx of money from HNIs and institutional investors in residential real estate is leading to underutilisation of units. How do you see this?
There are 1.14 crore flats lying vacant in India. These are being bought as investment opportunities. If you invest Rs 1 crore in real estate, you are getting Rs 1.8 crore next year without paying any tax. But if you keep that money in the bank, even if you earn 7 per cent interest, 30 per cent will go as tax, so net gains would be just 5 per cent.
Also, in pre-launch sales, the price for investors is almost 50 per cent and if the builder is good, buyers are seeing value in that. Pre-launch investors are always buying only for investment purposes and not for putting units on rent. I think it is a national crime to keep assets without utilisation. On the one hand, you are saying there is a shortage in the housing segment, and on the other, there are 1.14 crore vacant flats—it is a funny situation. If today you pass a law that you should not keep your flat idle and that idle flats should be charged double or three times the property tax, investors will be forced to give flats for rent or otherwise sell them.
What does the current scenario mean for affordable housing?
Within the affordable housing category, there is the economically weaker section (EWS), the low-income group (LIG), and the middle-income group (MIG). The EWS, which is nearly 60 per cent of the population, is depending entirely on the government or rental models because they don’t have a lot of income—with both husband and wife working, it is still less than Rs 30,000 (a month). Almost half that segment lives in urban areas and cannot afford to buy flats. Even if a flat costs Rs 30 lakh, it is a burden for them because the EMIs (equated monthly installments) alone come up to almost Rs 30,000 per month.
These people entirely depend on state and central government schemes for housing, like the now-expanded PM Awas Yojana. In the LIG category, even if they want to buy something in the city, they will not be able to as land costs have gone up significantly, raw material costs have also increased, and there is also 5-6 per cent inflation that is having an impact...So, the builders are just not touching EWS and LIG segments. Then, whom are they looking at? Only the people who are drawing salaries of Rs 70,000 and above.
In terms of policy, how can the government incentivise growth in the affordable housing sector?
For developers to avail tax deductions under Section 80-IBA on income earned through affordable housing projects, the government put upper limits in major cities with respect to housing area and cost. In Hyderabad, the limit on gross saleable area is about 1,000 square feet and the rate is fixed at less than Rs 45 lakh. Initially, it started well and many developers took advantage of the 80-IBA, but later with land and construction costs going up, the Rs 45 lakh restriction does not appear to be viable for them. There is no benefit to the developer. Also, before Covid when interest rates were down, EMI on a Rs 25 lakh loan was coming to Rs 20,000. Today it has gone up to Rs 27,000 and the unit costs have also increased from Rs 45 lakh to Rs 60 lakh. Interest rates for affordable housing can also be reduced from 9 per cent.
If the house costs less than Rs 45 lakh, you pay only 1 per cent as GST (Goods and Services Tax). But the moment it crosses that threshold, the GST rate becomes 5 per cent. All these things have made so-called affordable housing unaffordable. Also, state governments are charging between 7-10 per cent stamp duty. Registration charges are becoming very burdensome. Some concessions should be given. Registration should be 5 per cent for affordable housing.
Suppose your recommendations are accepted, what would be the impact on the sector?
With these changes, at the least I expect 25-30 per cent growth in the affordable housing sector. Ultimately, the government has to do something for the lower-middle and middle income groups. We want to be a developed country by 2047. But in developed countries, at least 96 per cent of the population should have living comfort. If still 40 per cent of the people are staying in slums, we cannot call ourselves a developed country. This is my request to the government.
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