How Infrastructure Status to Affordable Housing Is Beneficial to Both Developers and Home Buyers

In order to revive the slump-hit real estate industry, the Union Budget 2017 put-forward an announcement which was a win-win for both home buyers and developers. The finance minister granted an infrastructure status to affordable housing, this move is directed to give a boost to affordable housing. This proposal has been received positively by the real estate industry – right from middle-class home buyers, developers and home loan providers. The final aim of the Affordable Housing Sector Infrastructure status is to boost government’s target of providing housing for all by 2022.

Let’s get to know what benefits will be derived by real estate developers and home buyers:

Higher investment in affordable housing:

The union budget 2017 also proposed that NBFC will provide up to Rs. 20,000 crores of individual loans. The affordable housing means probability of high investment opportunities as home buyers can avail loans at a cheaper rate. It is predicted that a lot of players and new lenders will emerge with this move as interest rate moves downwards, resulting in high demand for residential real estate.

Tax exemption for developers:

Developers will get some relief from tax. The profits earned by builders will not have to pay taxes for the five years. Tax incentives alloted for infrastructure projects will result in decrease in prices. The demand for affordable homes is likely to increase given the extra cash people will have in hand due to proposed deduction of the income tax rate to 5% for taxpayers earning less than Rs 5 Lakh.

Carpet area will be counted instead of built-up area:

The biggest change under the budget was inclusion of carpet area, instead of built-up area. Carpet area of 30 sq meters limit will apply in case of municipal limits of metropolitan cities, while 60 sq meters will be the limit for the rest of the countries. This will ensure spacious home. The carpet area rule is likely to impact under construction projects to meet the afford-ability criteria.

Interest subvention:

Under Prime Minister Awas Yojana (PMAY), the government will provide the interest subvention of 4% and 3% on loans up to Rs. 9-12 lakhs. This is said to provide good boost to mass housing in all eight metro cities across the country.

Affordable housing has caught the attention of many private equity funds and it is also getting inquiries from overseas investors, even before the announcement of union budget 2017. it is also expected that equity funds and foreign investors would increase their stakes in the real estate sector. In short, the budget has got positive measures for developers, consumers and investors.

What Is Community Infrastructure District ("CID")?

The Background of CID – As the development of real estate continues to expand in Idaho, the impact caused by such expansion requires the necessary construction of public infrastructure to accommodate such growth. In 2008, Idaho legislature enacted the Idaho Community Infrastructure District Act (“Act”). The purpose of the Act was to create new mechanism for the financing of public improvements for the public agencies and developers alike. The Act, styled after similar legislation in New Mexico and Florida, addressed a critical issue of how to pay for new public improvement burdens in a cost effective manner. The Act authorizes bonds to be issued and repaid with a mechanism that taxes or assesses the land benefiting by the new public improvements. This provides for much needed community development which may otherwise be infeasible due to the significant costs imposed by the extensive public improvement burdens. At the present time, a Community Infrastructure District (“CID”) is allowed in an incorporated city or in the county if within the City’s comprehensive planning area and the city consents to the CID formation. The Act allows for the issuance of general obligation bonds, special assessment bonds or revenue bonds or any combination thereof. The projected annual assessment, tax or revenue stream secures the repayment of the bonds.

Eligible Public Improvements Available For CID Financing

  • Water Improvements
  • Sewer Improvements
  • Flood Control Projects
  • Roadways
  • Public Parking Structures
  • Landscaping and Lakes
  • Lighting and Traffic Control
  • Parks
  • Recreational Facilities
  • Public Safety Facilities
  • Financing Costs
  • Real Property Interests
  • Development Impact Fees

A sound CID should be established with the following overall objectives in mind:

The real estate developer’s financial goals should be met whenever reasonably possible since their project and its customers will be repaying the borrowing costs of the CID financing so long as it does not present any undue credit risk;

The real estate developer should use an experienced consultant to assist them in understanding all available options when going through the CID process;

On larger development projects, the CID financing should be structured to allow for multiple bond issues at different points in time and improvement areas should be employed to minimize the financial obligation on unimproved or underdeveloped property; The particular development project characteristics or constraints should be understood so that relevant risk associated with the project’s development and its ability to repay bond debt is clear. Examples of this are environmental constraints, infrastructure constraints, and private financing caps;

The legal and engineering side of the construction and/or acquisition of the improvements should be understood if tax exempt bond financing is being used. More specifically, the specific construction related guidelines and procedures should be spelled out when a real estate developer is constructing the public improvements and seeking reimbursement from CID bond proceeds;

The estimated annual cost and the maximum annual cost of the CID financing to the borne by all property owners involved in the development process needs to be fully understood and properly disclosed; and

The project’s appraised value needs to be properly performed consistent with sound bond underwriting and appraisal practices because the CID bonds are ultimately secured by the projects value. The appraisal instructions should be clearly defined from a CID bond credit perspective. For example, if bonds are being issued on an appraised value that assumes the project has unimproved lots with no performance guarantees at the appraisal date, then the appraiser has overstated the value for the value-to-lien ratio.

For more information in properly establishing a CID please contact http://DPFG.com