In India’s moribund real estate market, nirvana lies at the bottom of the pyramid. This, at least, is the clear message coming from the National Housing Bank’s (NHB’s) latest data on loan growth, where properties needing loans above Rs 25 lakh actually saw a drop in demand by 1 per cent last year.
Every loan category below that range saw big growth, with the largest growth being reported in loans under Rs 2 lakh – which can only be for rural areas or semi-urban ones. This suggests that Narendra Modi’s Housing for All by 2022 is taking off. The sub-Rs 2 lakh category saw 48 per cent growth in 2016-17 over the previous year, a Business Standard report shows.
In fact, loan demand growth is tapers down based on the size of the loan required, with loans upto Rs 5 lakh growing 44 per cent, upto Rs 10 lakh 43 per cent, etc. Beyond Rs 10 lakh, the rate falls sharply to 33 per cent, again emphasising that there is money to be made at the bottom of the pyramid more than the top. Margins may be low, but volumes can be high in segments below Rs 25 lakh, and especially below Rs 10 lakh.
This is because under the new interest subsidy scheme announced by the Prime Minister on 31 December 2016, loans upto Rs 9 lakh for those earning between Rs 6-12 lakh per annum will cost 4 per cent below commercial rates. For those in the Rs 12-18 lakh income bracket, loans upto Rs 12 lakh will be given at 3 per cent below the market interest rate.
Moreover, budget 2016-17 allowed those building affordable homes to claim tax exemption on the entire profits from this activity.
Clearly, business economics and demand are shifting in favour of affordable housing, both in rural and urban areas.
The problem is with the supply side. It is the states which need to now act to benefit from this huge demand by making land availability and building permissions easier for builders.
Without states putting their shoulders to the wheel, this initiative – which will create both growth and jobs by the million – will deliver sub-optimal results.
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