Given the government’s big promises of providing housing for all by 2022, sources say Budget 2015 could see a hike in the rebate offered on home loans.
In an interview to CNBC-TV18, Navin Raheja, chairman and managing director, Raheja Developers says the government would work at giving more disposable income into the hands of consumers.
He also expects the government to bring down home loan interest rates to 6-7 percent from the existing 10.25 percent
Below is the verbatim transcript of Navin Raheja and Arun Aggarwal’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Sonia: You have both luxury as well as affordable housing project. Tell us from an industry perspective, what are you expecting from the Budget this time?
Raheja: We will only want one thing that government should empower the consumers; government should give money in the hands of consumers, tax incentive so that they go in for buying houses. It should be given at least for first house. It must be given to fulfill the dream of housing for all by 2022.
We only expect that and to empower the consumer, you have to do one thing, you have to give them tax incentives which make him buy, you have to give him enough disposable income so that he can pay the EMI, the first one is it is a section 24(B), you need to increase the exemption limit of interest repayment on buying your first house. This limit was used to be about Rs 1.5 lakh. Last Budget it was raised to Rs 2 lakh while this was introduced way back in 1999. Now you must do index correction to that and currently the industry demand is that this limit should be increased to Rs 5 lakh because property prices have gone down by more than 2.75 times from 1999 till now. This limit should get increased so that people are induced to buy in the name of saving their taxation on buying the first house one is that.
Second is because of other priorities now of lifestyle people are not able to get disposable income enough to meet the EMI requirement. To correct that and bring it within that bracket what you need is that you need to bring down the interest rates from current 10.25 percent approximately average to may be about 6-7 percent so that the EMI equates with the rental payment and they can take out that much of disposable income.
Latha: What was that math that you just spoke about?
Raheja: Earlier, what we want is that the disposable income to be able to make payment of EMI that is the income which can be paid to make payment of EMI because of the high interest rates now which is ranging average about 10.25 percent of home loan. If that is brought down to 6-7 percent which you used to be there at the beginning that is 1999 -2000 it used to be 6.5 percent. Even if it is brought down to 6.5 or 7.5 or even 8 percent so you need to do hand holding for at least a first house where the home loan requirement is up to 50 lakh the interest rates for home loan should be brought down.
They may be by subsidy, may be by inflow of free capital they may be by government giving hedging to keep the foreign money price at the stable level, cost of money. Instead of allowing Indians to take out USD 2.5 lakh every year and buy a house outside it should allow money from outside to buy houses and make investment in real estate in India. It should be the other way round so we expect the Budget to address that issues also. Basically you have to empower the consumers.
Sonia: You said that the exemption limit on interest repayment you expected to go up from Rs 2 lakh to Rs 5 lakh. What about on the principle repayment under 80 (c) do you expect the exemption limits to be hiked or given that how cashrupt the government is this is an unrealistic expectations?
Raheja: We have given that limit only to 1.5 lakh that includes all sorts of payments that include payments of school fee for the children, that includes payment of provident fund; include payment of other investment assets. The money left only for the repayment of housing loan installment is not adequate. If you look into the current housing prices and particular in urban cities this limit definitely needs to be enhanced by at least may be Rs 1 lakh further so that payment can be made.
Latha: How are you all playing this expectation as a stock investor?
Aggarwal: There are two key things which are very important in the real estate sector right away is that one the volumes pick up which is specifically a factor of affordability and second is about the visibility for execution to it. The key thing over here is that if you are expecting some kind of improvement in affordability for the consumers and it is coming out of improvement in monthly household income which can be attributable towards home buying obviously can help significantly for any of the real estate developers who are looking to develop mid income real estate.
Latha: Are you looking only at real estate or is your brokerage looking at housing and housing finance? What would be your pick of the pack there?
Aggarwal: I am a real estate analyst so I would be more talking about the housing rather than housing finance. From that perspective the housing is bigger enabler as far as I am concerned so could be a way to play through HFC’s as well but as far as the housing is concerned people who are doing more mid income houses does get significant benefits if any of these expectations come through in Budget.
Latha: You have not given us any names?
Aggarwal: It starts with the players which are specifically in to mid income segment people like Sobha and Prestige, Sobha specifically because they are getting into inspirational homes. People like Ashiana Housing we have talked about them earlier, Puravankara from the north DLF if they are getting into new Gurgaon region with the some kind of projects which are coming within Rs 1 – 1.5 crore.