Updated 14:58 IST, January 28th 2025

Budget 2025 Expectations: Home Loan At Just 5% Interest Rate; Possible? NAREDCO Chief Is Hopeful

Haribabu proposed raising the Rs 45 lakh affordable housing cap, unchanged for seven years, to Rs 55 lakh nationwide and higher in metros like Mumbai.

Reported by: Leechhvee Roy
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Haribabu, President, NAREDCO
Haribabu, President, NAREDCO | Image: Republic

Budget 2025 Expectations: As the Union Budget 2025 is drawing closer, the President of the National Real Estate Development Council (NAREDCO), Haribabu, stressed the need to address the declining sales in affordable housing, high interest rates, and outdated policy frameworks that have created challenges for both developers and potential buyers.

Decline in affordable housing sales

Haribabu highlighted a 30-35% drop in sales from 2020 to 2023, with 2024 faring even worse. He attributed this to the withdrawal of government incentives like Section 80IBA, which supported affordable housing projects, and the discontinuation of the PMAY interest subvention scheme of Rs 2.6 lakh for homebuyers.

"People in urban areas, particularly lower-middle-income groups earning around Rs 70,000 monthly, are finding it difficult to afford homes due to high EMIs," Haribabu said. With interest rates on home loans increasing from 6.25% pre-COVID to nearly 9% today, EMIs have become prohibitively expensive.

For instance, a Rs 60 lakh home with a loan of Rs 40 lakh results in an EMI of approximately Rs 40,000. For families earning Rs 70,000, this constitutes a major financial burden.

How to make housing affordable again

Fixed interest rate of 5% on initial loans

Haribabu urged the Finance Ministry to cap interest rates at 5% for the first Rs 25 lakh of home loans for 15 years. He said that this would reduce EMIs and incentivize buyers, ultimately generating greater government revenue from taxes on real estate transactions.

Increase affordable housing cap

The current cap of Rs 45 lakh for affordable housing has not been revised in seven years, despite rising construction and land costs. Haribabu suggested increasing the limit to at least Rs 55 lakh nationally and even higher in metros like Mumbai.

"Mumbai may require a cap of Rs 1 crore due to its unique challenges, but for most of India, Rs 55 lakh is the minimum threshold," he added.

Reintroduction of Section 80IBA

Builders in the affordable housing segment are operating on thin margins. Reintroducing this tax incentive for developers would encourage more projects in the sector.

What is currently hindering the sector?

High ready reckoner rates

State governments have been increasing ready reckoner rates, with some areas experiencing annual hikes of 10-12%. In certain regions, the official rates exceed actual market values, making transactions expensive and driving up costs for buyers.

Skewed market growth

The wealth created by India’s economic growth has largely benefited the top 10-15% of the population, leading to a surge in luxury housing while affordable housing lags behind. Developers are focusing on premium projects, leaving urban middle-class buyers with limited options.

In cities like Hyderabad, over 15,000 affordable flats remain unsold despite being ready for occupancy. Haribabu warned that without policy interventions, this trend could worsen.

Push for infrastructure status over industry status

Highlighting a long-standing demand, the NAREDCO President clarified the need for infrastructure status instead of the often-debated industry status. "We don't want industry status at all. Industry tools cannot be applied to us because real estate projects are temporary in nature, with gaps between completion and the next build. What we truly need is infrastructure status," he said.

He further explained that infrastructure status would lower borrowing costs for builders, bringing loan rates down from the current 13-18% to 10-11%, making projects more viable. However, he said that clarity is essential on the size of projects that would qualify under this status, adding, "There should be some discussion on whether this applies to projects worth Rs 10 crore, Rs 20 crore, or Rs 100 crore."

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Published 14:58 IST, January 28th 2025