Dr S Chinnathambi
Professor of Finance, Department of Commerce, B S Abdur Rahman Crescent Institute of Science and Technology
There are three elemental and essential human beings’ needs to live in this universe: food, clothing, and shelter. Though food and clothing satisfy physiological desires, shelter meets the need for safety and security. The need for housing is an ever-expanding one in the present situation. With the rising incomes, better educational facilities foremost to sophisticated types of living and growing population, need for homes, relatively better houses are touched progressively. Circumstances are not being denied because the eminence of life of the people depends upon the excellence of housing amenities available to the people. People’s economic well-being is consequential by robust and hygienic housing situations.
The popular enactment of the National Housing Policy of the Central Government and Reserve Bank of India has been helping the movement of credit to the housing finance sector. Subsequently, housing has emerged as one of the sectors attracting huge importance to bank finance. The current focus of RBI’s regulation is to safeguard arranged growing of housing loan portfolios of banks.
Economic Growth in the recent scenario
Recent scenario, for India to reach balanced economic growth, it is indispensable to increase construction activity in the housing sector. Subsequently, Independence growth in the Indian population has intensified the problem of housing for Indian inhabitants. Conferring to the population census of 2001, out of the total population of 1027 million, around 742 million people live in some rural areas, and 285 million live in urban areas. The urban populace accounted for 27.8% of the whole population, whereas it was 25.7% below the 1991 census.
The government of India has taken a sequence of Initiatives for the growth of Housing and urban infrastructure. The National Housing and Habitat Policy 1998 accentuates “housing for all” by the end of 2007. The Government of India has been altering the housing sector into an engine of economic growth over functional policies and a mass of initiatives with the extension of assistance u/s 80 I to figure housing schemes, arguing of Urban Land Ceiling Act, improved rebates for housing loans, increased depreciation for employee housing, lower interest rates, securitization of housing loan, etc.
Impact on housing finance during the Covid-19
Housing sector development will be seriously impacted and is not likely to resuscitate till the economy displays any sign of development. Pressure on housing loans, predominantly affordable housing loans, will increase.
No one knows when the coronavirus disaster will end. Nations are rushing to find ways to comprise the spread and find a cure as economists and policymakers attempt to assess impairment from the pandemic, whose impact on the world’s economy is supposed to be poorer than that of the 2008 global recession.
In India, one of the sector’s maximums affected by the outbreak and the subsequent lockdown is real estate and housing finance. Earlier, we looked at the impact of the crisis on the housing sector. Let’s realize how the sector had been done before the pandemic.
The go-slow in real estate and housing finance initiated after the IL&FS crisis, the liquidity crunch in housing finance firms, and non-banking financial companies (NBFCs) impacted construction happenings. Things better slash after the government and the central bank interfered. Housing finance did not pick up as probably due to low demand as the economy reduced post the 2020 financial year Budget. There is a huge unsold housing inventory piled up completed the past four years in nine major cities.
The government acquired a slew of measures to resuscitate the economy and the real estate sector by setting Alternate Investment Fund of ₹25,000 crores to offer last-mile funding to near 1,600 stalled projects at different stages, increasing Income tax exemption on housing loans of ₹ 2.5 lakh to ₹ 3.50 lakh for inexpensive housing, and countless other measures to the improvement of supply and demand.
Whatsoever noticeable uptick the measures had brought around has been wiped out by the coronavirus pandemic. The economy of all sectors is badly successful with immediate high influence on domestic service sectors such as tourism, aviation, hospitality, small business, retail, auto/taxi, food, and beverages, etc.
The government of India has taken adequate steps to comprise the spread of the virus. It has also proclaimed immediate support for farmers, building construction workers, and migrant laborers from different parts of India—most impacted by the lockdown and the economic standstill.
Smooth if the lockdown is boosted, the economy will take ample time to get back to normal. Here there is bound to be massive unemployment successful onward. Despite its tight fiscal position, the government is likely to declare another package for numerous sectors, but there is no supplementary way out.
The complication of the Real Estate sector
In India, the financial sector will be the most hit due to complications in the real estate sector. Non-performing assets are set to increase, and liquidity will be poorly hit. The Reserve Bank of India (RBI) took extraordinary steps, proposing to infuse ₹ 3.74 lakh crore liquidity done a cash-reserve-ratio cut of 1%, beset long-term repo auction, marginal liquidity capability, a deep repo rate cut of 75 bps, and further prominently permitting a three-month moratorium on all-term loans and working capital. This will provide a break to all those borrowers whose cash flow was impacted due to Covid-19. Banks and financial institutions, and HFCs/NBFCs will be bright to defer non-performing assets appreciation.
Growth of the housing sector
Housing sector growth will be heavily obstructed and is not likely to recover till the economy demonstrates any sign of improvement. Strain in the housing loan, particularly in reasonable Housing, will rise. Establishments that have large exposures to small businesses and informal sectors will see little complex stress for a few months due to a fall in demand and the declining ability to repay. Nevertheless, many small businesses serve the common man and henceforth have more flexibility to revive soon as the situation gets regular.
Also, it depends on how dissolute workers who have gone back to their villages return to work. General, housing development in 2021 will be like the year 2020, and more depends on coordinated with RBI and the government of India. The repo rate cut of 75 bps has completed home loans from banks ample inexpensive.
Property tariffs are also expected to be cut by developers by 10% – 15%, hereafter the demand for Housing by Organised segment employees for houses of ₹ 25 lakh to ₹ 75 lakh is expected to recover soon after once the lockdown ends. But, low-income affordable housing demand will take slightly more time and will depend much on government sustenance.
Individuals who determine this housing sector will find it tough to manage their own contribution, which has now become more problematic. The government pinches the present procedure for the release of applicable credit-linked subsidy to known beneficiaries through lenders before loan distribution. The modification will revive affordable housing growth as imagined in Housing for all by 2022.
- DEO SHANKAR TRIPATHI, “The Covid-19 impact on housing finance” The author is managing director and CEO, Aadhar Housing Finance, Apr 8, 2020. https://www.fortuneindia.com/opinion/the-covid-19-impact-on-housing-finance/104410
- By Manoj Viswanathan Chief Executive Officer and Managing Director Home First Finance Company Jun 30, 2020. https://www.99ac res.com/articles/the-impact-of-covid-19-on-housing-finance.html
- SUNITA MISHRA “Impact of Coronavirus on Indian real estate” https://housing.com/news/impact-of-coronavirus-on-indian-real-estate/ DECEMBER 7, 2021
- Ashwani Kumar Bhalla, Dr. Pushpinder Singh Gill and Dr. Parvinder Arora “Housing Finance in India: Development, Growth and Policy implications” PCMA Journal of Business, Vol.1, No.1 (December, 2008) 51-62
- Media Reports, Press releases, Knight Frank India, VCEdge, JLL Research, CREDAI-JL, Union Budget 2021-22 https://www.ibef.org/industry/real-estate-india.