Reviving the Indian Housing Sector

August 7, 2014 / By

The new government coming into power with a clear majority has created a new wave of optimism in the Indian business environment. The determination and political will of this new government to make changes is likely to rejuvenate the nation’s economy. Recently there was some good news for the housing sector with the easing of the FDI regulations regarding project size and the allocation of INR 40 billion for affordable housing through the National Housing Bank (NHB). These measures were announced in the budget and came as much needed revival mechanisms for the housing sector. In addition to this, the Reserve Bank of India (RBI) eased restraints on residential lending.

The July budget opened the door to FDI in projects of a size of only 20,000 sqm instead of the 50,000 sqm previously and the minimum investment for FDI was set at USD 5 million (previously USD 10 million). This will allow capital to flow to smaller sized projects, which are usually in the centre of cities due to the limited availability of land, and boost the development of the residential sector, which is currently the most preferred target for foreign investors. This is likely to improve the residential supply within city limits.

In addition to the above, the affordability of housing should improve significantly with the allocation of funds for the mass market housing sector through the easing of lending regulations by the NHB and RBI and making loans eligible on a priority basis. The RBI has stipulated that housing units priced at a maximum of INR 6.5 million in six metropolitan cities (Mumbai, New Delhi, Chennai, Kolkata, Bengaluru and Hyderabad) may be considered as affordable housing. This move is likely to uplift buying sentiment in these cities and revive the residential sector which has been struggling with soaring unsold stock.

With all of these new measures, the overall sentiment in India towards house-purchase is likely to improve


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