Demand for affordable housing in Indian cities fell from a "respectable" 39 per cent in 2018 to 26 per cent last year as Covid-19 impacted the segment, said a report on Monday.
Supply in the affordable house segment fell sharply too. According to property consultant Anarock's 'Consumer Sentiment Survey 2022', there is significant unsold affordable stock in the top seven cities. Out of a total of 6.30 lakh unsold units in the seven cities, affordable housing accounted for more than 27 per cent. The upcoming Union Budget presents an opportunity for the government to revitalise the segment, said the report warning demand has "sunk precariously".
One way to help demand is to redefine "affordable houses" by raising their maximum price for tax rebates from the current Rs 45 lakh.
"One possible way the Budget can intervene is by revising the price bandwidths for homes that qualify as affordable housing, as per the specific market dynamics of different cities," said Anuj Puri, chairman at Anarock Group. "The size of units that qualify for various affordable housing benefits is currently 60 sq metre on carpet area. While this is appropriate, the uniform price band of up to Rs 45 lakh for affordable housing is not aligned with the market realities of most major cities."
The report said the Rs 45 lakh threshold to define affordable housing is impractically low for a city like Mumbai and it should be increased to Rs 85 lakh or more. In other major cities, the price band should be increased to Rs 60-65 lakh.
"This would result in more homes qualifying as affordable housing, enabling many more homebuyers to avail benefits such as reduced GST at 1 per cent without ITC, and other government subsidies," it added.
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Puri said the Rs 2 lakh tax rebate on housing loan interest under Section 24 of the Income Tax Act must be increased to at least Rs 5 lakh to build housing demand. In an earlier report, several other real estate developers in India had also told 'Business Standard' that the tax deduction limit should be raised.
The supply of affordable houses has also been falling since 2018. Out of a total of 3.58 lakh units launched in the top 7 cities in 2022, affordable housing accounted for just 20 per cent.
"If we consider that in 2018, this segment had a 40 per cent share of 1.95 lakh units launched that year, the plunge is stark," the report said.