As soon as the Finance Minister announced infrastructure status to affordable housing in the recent Budget, stocks of real estate developers, select banks and housing finance companies moved higher and higher on the domestic bourses.
It was a longstanding demand of the real estate developers. Over the past few years, the real estate sector was languishing due to lack of demand on the back of weak sentiment among home buyers and rising inventory levels.
The announcement to ban high-value currency notes further dampened sentiment in the real estate sector. However, the recent Budget has offered many measures aimed at kickstarting the investment cycle.
At present, the macro environment is extremely favourable for housing finance companies. The Modi government’s incentives in terms of allocation related to Pradhan Mantri Awas Yojana (PMAY) of Rs 23,000 crore would provide the much-needed momentum to the sector. The total allocation for the infrastructure sector in the Budget stood at Rs 39,6135 crore in 2017-18.
The holding period for capital gains tax in case of immovable properties has been reduced from three to two years. Moreover, the Finance Minister has proposed to shift the base year for indexation from 1.4.1981 to 1.4.2001 for all classes of assets, including immovable property.
This step would allow more realistic calculation of the cost of acquisition of the house while claiming indexation benefits. The Finance Minister has announced that National Housing Bank would refinance individual loans worth Rs 20,000 crore in 2017-18. This is positive towards the sector.
Infrastructure status to the sector would help affordable home developers access cheaper funds from big institutions such as insurance companies and pension funds.
This step is expected to improve margins, and increase supply, meaning thereby that margin issues that private players often face would be eased and this would provide ample push to the sector.
It is expected that with several associated benefits and the advantage of digital documents, the cost of finance is expected to come down, which may be passed on to the real buyers.
In the days to come, supported by growth drivers such as rising disposable income, personal income-tax benefits, increasing urbanisation and economic growth of tier II and tier-II cities, the sector is likely to see immense growth.
Government initiatives towards ‘housing for all’ would give immense boost to the companies form the housing finance space such as GIC Housing Finance, LIC Housing Finance and Dewan Housing Finance.
At present, valuations of these companies are looking attractive and investors can look at investing in these stocks for the long term.