In February of this year, Union Housing Minister Ajay Maken had indicated that the Centre is considering the possibility of according infrastructure status to affordable housing. While we have still not been given greater clarity on the progress of this initiative, it is certainly a great need of the hour for India’s larger cities.
As a real estate segment, affordable housing has been languishing for a long time, even though it is the very segment in which the highest demand exists. The constant hype about the rising fortunes of India’s fast-growing affluent class has ignores the fact that most Indians still cannot afford to buy their own homes. This is true even for the original inhabitants of rural areas that have been added to city limits.
So far, infrastructure status was given only to industries and companies active in building highways, ports, airports, Metro rail systems, etc. Real estate in any form has so far not been extended these benefits. When an industry is given infrastructure status, it basically means that the Government has recognized it as a necessary sector which caters to the general good of the nation.
By virtue of this, it becomes eligible for various incentives and subsidies at the Central and State level. When a segment of housing gets infrastructure status, the Government provides tax benefits, and institutional lending to that segment also eases. Banks are directed to increase lending to the sector, and companies engaged in the segment can also raise bonds to generate funding for their projects.
However, it should also be noted that companies enjoying the benefits of infrastructure status eventually wind up paying more taxes. This is because the incentives that make the creation of affordable housing more viable for them also lead to higher earnings, which are naturally taxable.
Nevertheless, the good news is that this initiative – when implemented – will boost investments flows both from domestic and foreign investors, thereby increasing supply. Increased supply results in higher competitiveness and helps keep prices down.