March 29 2020
‘Demand for second-hand flats rising’
20 October 2018

Doing away with GST on such apartments is tilting the scales : Srinivas Acharya

Sundaram BNP Paribas Home Finance is seeing an uptick in demand for loans that fund the purchase of second-hand flats. “The doing away with GST on second sales is tilting the scales,” said managing director Srinivas Acharya.

The contribution from this segment to the lender’s business is about 18%, rising from ‘11%-12% a couple of years ago.’ The company’s total disbursements in the fiscal 2017-18 came to ₹2,626 crore. “Previously, there was a stigma attached to buying a second-hand flat,” said Mr. Acharya. “That is now gone. It is a trade-off for the buyer between the ‘perceived’ advantages of a new flat against the ‘real’ disadvantages of a second-hand flat. Since the disadvantages, if any, of a second-hand flat are known and real, he accepts it and makes the purchase.” Second-hand flats also tend to fall within a given budget for buyers and are closer to a city’s centre.

Mr. Acharya also pointed to the need for job creation to help prop up demand for housing, specifically affordable housing. “Job creation is of priority if affordable housing is to kick off. Today, affordable housing is driven through government subsidy, which may not be sustainable. Affordable housing should ideally be driven by the government providing land with a cap on overall price to be charged by the builder. Good connectivity to the job location is just as important..” He said the firm was bullish on the segment, which currently contributes to about 42% of its business.

He added that rising interest rates seldom deterred homebuyers. “It is a myth that interest rates drive sales of flats. Our lending is anyway at variable rates. So I do not see interest rate as a factor.”

In Tamil Nadu, housing projects have to tended to face long delays in delivery. Citing delayed approvals as a reason, he said, Under RERA, builders cannot advertise their projects or start bookings unless the project is approved. The general feeling in the real estate sector is that long delays in approvals has added significantly to the costs of the builders with their capital also being blocked for long periods. Sanctions have to be expedited and this will lead to faster completion of projects.

Mr. Acharya added that the levy of GST on real estate transactions was still clouded in uncertainty. “There are still some doubts about GST in the real estate sector. It is intended to be a single tax but if that is so, what happens to stamp duty? Also, in subsequent sales, will there be an input tax credit?”

A ‘dampener’

The levy of GST had been a bit of a dampener for the Chennai market, he added. “While it is a fact of life and is here to stay in the long run, it may take just a little while longer for it to register in the minds of the homebuyers in Chennai. I have advised builders who see demand but are unable to sell because of GST, to absorb GST to the extent possible rather than wait for prospective buyer to pay the tax.”

“My view is that tempo of demand is important in this sector. I asked them to come out of their shackles as it will help in creating a positive sentiment and pushing the sale of flats. This will create liquidity for the builders and create movement of the stocks that they have. “This will help them focus on future projects. An unsold flat will negatively affect the brand of the builder.”

The firm is planning to raise ₹3,500 crore this year compared with the ₹2,800 crore raised last year. “We have already raised ₹1,600 crore so far this year. We are targeting a disbursements growth of 10% this year.”

The company also launched an app in August to facilitate an online transfer of EMIs. “Within two months, over 1% of our customers have moved to making payments through the app. This percentage is likely to go up further in the future as ‘we are finding an overall acceptance among our customers for the digital route to payment. This will reduce our cost of collection significantly. Also, payment through the app results in instant credit into the account. The customers, too, have found this a very convenient tool to make payment.”



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