- Date : 19/09/2019
- Read: 3 mins
Learn all about the recent announcements made by the Finance Minister which is expected to lift the housing sector.
In the third round of economic stimulus announced by the Finance Minister, Ms Nirmala Sitharaman, the housing sector came out a major beneficiary. Since the sector is under severe stress due to the oversupply and stagnation of sales, this move was not unexpected.
Here are the highlights of the announcement:
- Relaxation in the guidelines to External Commercial Borrowing (ECB), in consultation with the RBI, has been proposed. Consequently, developers will be able to arrange funds from overseas funds. It will make managing finances easier for the home buyers who are eligible under the Pradhan Mantri Awas Yojana.
- It was declared that the interest charged on house building advance will be reduced and that it will be linked to the yield of 10-year government security yields. This is expected to encourage government employees to buy new houses.
Related: An expert's guide to buying real estate in 2019
- A special window has been proposed to provide last mile funding to housing projects,
- It will be applicable to projects which are non-NPA (Non-performing asset) and non-NCLT (National Company Law Tribunal), have positive net worth and fall under the affordable and middle-income category.
- The fund for this special window will be in line with the National Investment and Infrastructure Fund and set up as a Category II- AIF Trust.
- It will be professionally managed by housing and banking sector experts and will thrive by completing unfinished housing projects. Rs. 10,000 crores will be contributed to the fund by the Government of India. A similar account will be brought in from outside investors.
- As a part of encouragement to affordable housing, the government will allow an additional income tax deduction of Rs. 1.5 lakhs on the interest portion, for loans borrowed until the end of the financial year 2019-20. The precondition is that the value of the house shouldn’t exceed Rs. 45 lakhs.
Related: All you need to know about home loan disbursement process
Some terms explained
ECB (External Commercial Borrowings) – is a loan availed by an Indian individual or business enterprise from a non-resident lender. It includes foreign commercial bank loans, buyer’s credit and supplier’s credit, credit from export credit agencies and borrowings from multilateral financial entities.
NPA (Non-performing asset) – is a loan or an advance whose principal or interest portion has been overdue for over 90 days. NPA is a banking terminology used as a reminder that a certain receivable amount has not yet been recovered.
NCLT (National Company Law Tribunal) – is a quasi-judicial authority that has been created to deal with corporate disputes which have a civil nature. It handles company law matters and runs within the operational scope of a court of law.
NIIF (National Investment and Infrastructure Fund) – it is a government-backed entity formed to facilitate long-term capital to the infrastructure sector. The Indian government has a 49% stake in NIIF with the remaining share held by an ensemble of foreign and domestic investors.
AIF (Alternative Investment Fund) – is a privately sourced investment vehicle with contributions from niche domestic and foreign investors. The fund is then invested as per the investment policy, with due consideration to the benefits of the investors.
In the third round of economic stimulus announced by the Finance Minister, Ms Nirmala Sitharaman, the housing sector came out a major beneficiary. Since the sector is under severe stress due to the oversupply and stagnation of sales, this move was not unexpected.
Here are the highlights of the announcement:
- Relaxation in the guidelines to External Commercial Borrowing (ECB), in consultation with the RBI, has been proposed. Consequently, developers will be able to arrange funds from overseas funds. It will make managing finances easier for the home buyers who are eligible under the Pradhan Mantri Awas Yojana.
- It was declared that the interest charged on house building advance will be reduced and that it will be linked to the yield of 10-year government security yields. This is expected to encourage government employees to buy new houses.
Related: An expert's guide to buying real estate in 2019
- A special window has been proposed to provide last mile funding to housing projects,
- It will be applicable to projects which are non-NPA (Non-performing asset) and non-NCLT (National Company Law Tribunal), have positive net worth and fall under the affordable and middle-income category.
- The fund for this special window will be in line with the National Investment and Infrastructure Fund and set up as a Category II- AIF Trust.
- It will be professionally managed by housing and banking sector experts and will thrive by completing unfinished housing projects. Rs. 10,000 crores will be contributed to the fund by the Government of India. A similar account will be brought in from outside investors.
- As a part of encouragement to affordable housing, the government will allow an additional income tax deduction of Rs. 1.5 lakhs on the interest portion, for loans borrowed until the end of the financial year 2019-20. The precondition is that the value of the house shouldn’t exceed Rs. 45 lakhs.
Related: All you need to know about home loan disbursement process
Some terms explained
ECB (External Commercial Borrowings) – is a loan availed by an Indian individual or business enterprise from a non-resident lender. It includes foreign commercial bank loans, buyer’s credit and supplier’s credit, credit from export credit agencies and borrowings from multilateral financial entities.
NPA (Non-performing asset) – is a loan or an advance whose principal or interest portion has been overdue for over 90 days. NPA is a banking terminology used as a reminder that a certain receivable amount has not yet been recovered.
NCLT (National Company Law Tribunal) – is a quasi-judicial authority that has been created to deal with corporate disputes which have a civil nature. It handles company law matters and runs within the operational scope of a court of law.
NIIF (National Investment and Infrastructure Fund) – it is a government-backed entity formed to facilitate long-term capital to the infrastructure sector. The Indian government has a 49% stake in NIIF with the remaining share held by an ensemble of foreign and domestic investors.
AIF (Alternative Investment Fund) – is a privately sourced investment vehicle with contributions from niche domestic and foreign investors. The fund is then invested as per the investment policy, with due consideration to the benefits of the investors.
