Housing is a social cause. The government should endeavour to provide shelter to everyone. In vast country like India, government alone cannot attend to this and may take many decades to achieve this goal. To hasten the process government should at least facilitate the housing construction, by establishing separate agencies, making available required material at concessional rate, and by tax sops to encourage builders.
The establishment of the National Housing Bank is a landmark in this direction, which was followed by formation of many housing finance companies. Some of the scheduled commercial banks floated subsidiaries exclusively to finance housing. Reserve Bank of India advised the banks to earmark 3% of their incremental deposits to the housing finance. These institutions have played a remarkable role in the property industry.
Reserve Bank of India, acted as a catalyst by pursuing the soft interest regime which has further accelerated the housing finance with reduced interest rates. Government of India became pro active by increasing the tax benefits on housing loans. These, coupled with intensive campaign have made everyone aware of the importance of the housing. Increased savings in tax payment have helped many people to divert such savings towards loan repayment.
At present housing finance is buoyant. In fact, when all other sector were plagued by recession, housing sector became saviour of the commercial banks and also economy of the country.
Many industries depend on housing sector. Major chunk of the labour force, especially from weaker class depend on construction industry to earn their bread, But there is a threat looming large in the form of Kelkar Committee Report. The committee has proposed to restrict interest exemption up to 50,000 on loan amount of Rs. 5,00,000 and no exemption at all above 5,00,000.
Real need of the day is to remove the ceiling of Rs. 1,50 lakhs of the loan interest exemption on the capital borrowed to acquire a house for self occupation, but not to reduce it. The proposals of Kelkar committee, if accepted would only dampen the enthusiastic borrower and would adversely effect the housing sector.
Property industry is eagerly awaiting the outcome with crossed fingers with a hope that the government of India will not accept the recommendations of Kelkar committee, but will further increase the existing tax benefits to the property industry.
Housing finance companies should also come out with innovative schemes and increase the repayment period to 30 years, so that the people living in rented houses own houses and pay EMI instead of rents.