Growth Drivers

Higher affordability led by increasing disposable income

India’s per capita income has been growing at a steady rate and amounted to = 92,718 in Fiscal 2019 (base year Fiscal
2012). According to the Ministry of Statistics and Programme Implementation (MOSPI), per capita income is estimated
to have grown at 5.8% in Fiscal 2019 compared to 5.7% in Fiscal 2018. The increasing trend in per capita income is
expected to continue. In the short-to-medium term, disposable income will rise as a result of implementation of the
Seventh Pay Commission recommendations and the One Rank One Pension scheme, and sustained low inflation. This
will be an enabler for domestic consumption. Further, increasing disposable income typically has a positive correlation
with demand for housing units as it increases affordability.

Rapid urbanization will increase housing demand

Urbanization provides an incentive to housing demand, as migrants require housing units. The increasing urban
population has pushed the demand for houses in urban areas. People from rural areas move to cities for various reasons,
including better job opportunities, education and avail better lifestyle. Approximately 36% of India’s population is
expected to live in urban locations by 2020, which will drive the demand for housing in these areas. Urbanization has a
similar impact on housing demand. On the one hand, it reduces the area per household, while on the other hand, there is
arise in the number of nuclear families, which leads to the formation of more households.

Rise in number of nuclear families leads to demand for new houses

 

Nuclearisation refers to formation of multiple single families out of one large joint family. Each family lives in separate
houses, while the ancestral house may be retained or partitioned to buy new houses. Nuclearisation in urban areas is
primarily driven by changing lifestyle of people, individualism, changing social/cultural attitudes and increased mobility
of labour in search of better employment opportunities. Such trends are expected to continue in future.

Changing floor space requirement:

Floor space requirement is dependent upon the size of the family as well as affordability determined by the income
levels. With increasing nuclearisation, the per capita floor space area required reduces as the family size shrinks.
As incomes increase, people shift to bigger houses, accordingly, increasing existing demand. For lower income groups,
floor space required is marginally higher in rural areas compared with urban areas, which may be attributed to lower
prices in rural areas.

Last-mile affordable housing funding package and relaxation of ECB guidelines:

In September 2019, the government announced a % 100 billion special window to provide last-mile funding for the
completion of ongoing housing projects that are non-NPA, non-NCLT and are net worth positive in the affordable and
middle-income categories. The government will contribute about 2 100 billion and outside investors such as Life
Insurance Corporation of India, private capital, sovereign wealth funds and development finance institutions will
contribute roughly the same amount. The objective of this move is to focus on the construction of unfinished units. This
move is expected to benefit roughly 0.35 million projects in the country.

The government also announced that the external commercial borrowing (ECB) guidelines will be relaxed to facilitate
financing of home buyers. This will be carried out in consultation with the RBI to help identify eligible beneficiaries
under the PMAY. The relaxation will be in addition to the existing ECB norms for affordable housing.

Tax incentives

The Government has traditionally used tax regulations to promote the housing sector. Tax incentives for the housing
sector have been instrumental in driving growth in the housing and housing finance sectors. Tax benefits announced in
the Union Budget 2019-20 include interest deduction on loans taken until March 31, 2020, for the purchase of a house
valued up to 2 4.5 million, which has been enhanced to 0.35 million from 0.2 million. The additional interest deduction
of = 0.15 million would reduce the effective home loan interest rate by 40-50 basis points (bps) for a typical 15-year loan.
In addition, certain other tax benefits are as follows:

e As per Section 24 (B) of the Income Tax Act, 1961, annual interest payments of up to = 200,000 (= 300,000 for senior
citizens) on housing loans can be claimed as a deduction from taxable income;

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