India’s affordable housing segment has a shot in the arm ready. Time to use it

2 min read

India’s realty sector had a rough ride this year when it caught itself in a fierce biological storm. The housing market was on its run to an optimistic revival when the nationwide lockdown pulled the plug on the sector which impaired residential sales and cast a pall of gloom on housing markets nationwide.

However, the black swan event couldn’t cause terminal injury to the sector as it rose up to the occasion aided by financial stimulus and actionable incentives from the government that saw its affordable housing segment amass record housing sales and perk up the hopes of realtors. The reduction in stamp duty by some states towards the end of Q3 was a welcome shot in the arm and will speed up existing inventory clearance of most real estate developers.

The market fundamentals are still strong since the pandemic has made homeownership a priority. Homebuyers who had been on the verge of making purchases and took a retreat owing to the avalanche of uncertainties have trooped back into the housing market. A new section of homebuyers-millennials has also started exploring the market. Perennially a rent-favouring demographic, this set of young homebuyers have considered upgrading their liveability status and buy a home looking at the optimal homebuying conditions on offer. All these developments resonate well for the housing market looking to get back onto its feet.

Stamp duty cut to rein in more homebuyers

The announcement of slashing of stamp duty rates by states like Maharashtra, Karnataka was a masterstroke and will provide huge succour to housing markets like MMR, Bangalore looking to get a good catch this festive season. Maharashtra saw a stamp duty correction from 5% to 2% valid till December 2020 and to 3% from January-March 2021. Karnataka reduced the stamp duty from 5% to 3%.

National Real Estate Development Council (NAREDCO) Maharashtra went a step further by waiving off the remaining 3% stamp duty. However, the apex body sweetened the deal further by announcing that the waiver in stamp duty will continue till December 31.

The stamp duty cut is a win-win situation for both homebuyers and developers. Firstly, it will pull first-time homebuyers and fence-sitters towards the homeownership net. Zero stamp duty along with stable property prices and lower interest rates will chime well for most homebuyers as they will have to fork out less.

For developers, this stamp duty waiver will push the housing sales trajectory and send a positive signal to foreign investors to finalize their investment plans into the industry which in turn will create a flush of liquidity for the sector.

More states set to join stamp duty cut initiative

The stamp duty cut during the month of August pushed Mumbai’s residential sales by 300% from August 2020 to October 2020. Sales in the month of October itself increased by 36% year-on-year and surpassed pre-Covid levels. Even registration of apartments went up by 34%.

While this has surely buoyed the expectations of the real estate sector looking desperately for a light at the end of the tunnel, it is expected that the rest of the states will follow suit and reduce stamp duties to push real estate activity, generate significant revenue and aid economic growth. The cut in stamp duty will not hit states’ revenue since this measure will lead to the construction of lakhs of houses under the “Housing for All” initiative which will generate a huge amount of incremental revenue for the states.

This is the right time for states to make such a precious move as income tax relief for buyers of new homes up to 2 crores have been announced recently by the government.

Affordable housing segment to recover faster

The lowering of stamp duty is a potent inoculation into the flaccid housing market sentiment and will auger well for the affordable housing segment and the real estate sector in general. Industry experts reiterate that this move will benefit ready-to-move-apartment buyers as such projects do not attract GST and the reduction of stamp duty will lower the transaction cost further.

Also, the reduction of the overall cost for homebuyers will provide a perfect fillip to the demand for affordable homes, increase compliance and lead to a burst in home sales. Affordable housing will recover faster than usual and become the guiding light for the real estate sector to help it ride out of the crisis by infusing much-needed liquidity into the sector, bringing fresh investments from buoyed foreign investors and boosting other housing segments.

Sumit Mondal Content Analyst at Square Yards
Sumit Mondal Content Analyst at Square Yards