Sales : 
Housing finance institutions need to take a proactive approach and recognize that borrowers now have more disposable income, says Rohit Gera.
The budget announcement by the Finance Minister pertaining to the tax slabs has the potential to re-energize the real estate industry, which has seen a drop in sales as a result of the steep increase in interest rates last year.
The increase in the slabs applicable to taxable income leads to an increase of approximately Rs.45,000 per year in the net disposable income after payment of taxes to the government.
If one is to use the entire sum towards repayment of a home loan, the loan eligibility of the individual will rise by almost Rs.4 lakh. The impact of this gets further increased when one considers the home loans taken by co-borrowers for one home.
If one is to look at rates at an average of Rs.3,000 per sq.ft. and an apartment size of 1100 sq.ft., the total cost of the apartment works out to approximately Rs.37 lakh. With a self payment of Rs. 5 lakh, the home buyer takes a loan of Rs.32 lakh. This requires a repayment of Rs.32,000(assuming a 20 year mortgage and a 10.5% interest rate pa). With an additional Rs.4000 available every month (thanks to the finance minister) to repay towards a home loan, the loan eligibility would rise to Rs.36 lakh, thereby increasing the budget to Rs.41 lakh from the original Rs.37 lakh.
In order to assess the impact of this tax benefit in a different manner, we looked at the equivalent impact of increase in loan eligibility on account of reduction in interest rates.
If one is to assume the tax rates did not change but the interest rates went down to increase eligibility, the same amount of increased eligibility of Rs.4 lakh works out to an equivalent interest rates of 8.75%. This is a reduction of 1.75%.
This impact is huge and has gone largely unnoticed by the industry; however, for it to have any significant impact, the Housing Finance Institutions need to play their part.
For the most part,HFIs assess eligibility based on a fixed percentage of the gross monthly salary of the home buyer. Since the monthly salary has not gone up, the eligibility will also not be seen as going up. However, the take home or disposable income has indeed gone up as a result of the new tax structure. It is therefore crucial that the HFIs take into account this increased disposable income and change their percentage based formulas to perhaps the original percentage PLUS Rs.4,000 to arrive at the eligibility level for the home buyer.
When this move happens, home buyers will get the increased affordability that was taken out by the increased interest rates.
The industry is facing the potential of revving up again - it requires the HFIs to recognize the fact that borrowers now do have more disposable income in their hands and take a proactive approach to the repayment capability of the borrowers which in turn will lead to increased volumes all around.
ROHIT GERA IS EXECUTIVE DIRECTOR, GERA DEVELOPMENTS
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