In recent years though, the government has been taking steps towards moderating real estate transaction/finance costs and taxes, through measures such as higher income tax incentives for first time buyers in the form of housing loan interest deduction, credit-linked subsidy schemes under PMAY for purchases in the affordable and mid segments, etc.
Post the onset of covid-19, a steep reduction in home loan rates, together with other state and central government incentives, has further supported affordability and in turn, housing demand, thereby stimulating some recovery from post-covid lows, said ICRA Ratings, a rating agency.
Housing sales volumes, which had declined by 62% year-on-year in Q1 FY2021, bounced back considerably in subsequent quarters, with a quarter-on-quarter growth of 60% in Q2 FY2021 and further quarter-on-quarter growth of 53% in Q3 FY2021, limiting the year-on-year dip to 7% in Q3 FY2021, according to the rating agency.
Shubham Jain, senior vice president and group head, ICRA, said, “In recent quarters reduced home loan rates, attractive payment schemes/discounts and reduction of stamp duties in certain key states on the back of Covid-19, has significantly brought down housing costs and stimulated housing demand.”
Repo-linked lending rate (RLLR) for home loans have touched a historical low, with the rates dropping below 7%. Banks are also offering discounts on processing fees etc.
Given the prevailing economic uncertainties, repo rates are likely to remain low over the near-to-medium term, and thus home buyers may continue to benefit from the same into FY2022.
Certain states, i.e. – Maharashtra and Karnataka have extended 2-3% reductions in stamp duty for a limited time, which has spurred housing registrations to reach all-time highs in some areas.
The Maharashtra government has also reduced construction premiums for developers by 50% up till December 2021, and in turn, has required the developers availing of this scheme to pay stamp duty on behalf of the buyers, which is expected to further boost demand in the region.
“A focused attempt to address affordability through reduced housing costs for the home-buyer would allow for the recent demand uptick to continue, and thereby enable the recovery of housing demand to pre-Covid levels within FY2022,” added Jain.
The upcoming budget 2021 may also add a stimulus by increasing income tax deductions and relaxing some of the caps currently applied.