A shelter, which you can call yours, is one of the most important needs of human beings apart from two other needs like food and clothing. In terms of employment generation also, housing along with allied sectors emerges as one of the largest employers of labor force. As a result, they contribute significantly to the country’s GDP. In the times to come, housing is expected to rebound as the economy emerges from the effects of the pandemic. So, how can you, as an investor, benefit from this turnaround story?
Why invest in the housing sector now?
It is widely believed that housing is on the verge of a turnaround. If so, then a plethora of allied industries also stand to gain. In my opinion, the following are the key drivers that can boost the demand and performance of the housing and allied industries.
First, the country’s population is expected to increase by 2050, which is expected to reduce the proportion of dependent people. Also, the working population is expected to be better off economically due to higher incomes and savings at their disposal. Since real estate is an emotional necessity and an asset class that everyone identifies with, it is very likely that a substantial portion of these savings will find their way into real estate investing.
In addition, India’s urban population is projected to increase from 48.19 million in 2020 to 52.50 crore by 2025 and to 600 million by 2036. This is likely to translate into a growing demand for housing and office space in the future. With ‘work from home’ increasingly becoming an accepted norm in the post-Covid era work culture, working couples have realized the need for larger homes. This will further increase the demand for bigger houses.
Various government schemes like Pradhan Mantri Awas Yojana (PMAY) and Affordable Rental Housing Complex are also expected to increase the demand for housing projects in the country. This is because the home purchase subsidy under PMAY combined with the lowest ever home loan rate could lead to higher activity in the housing sector.
With all these factors, time improvements in recent times as well as increased earnings during the same period have resulted in better housing affordability among the masses. Moreover, record low home loan rates have made owning a home more affordable. Putting these two factors together may create any impediment to the implementation of their deferred decision.
How to take exposure in the housing sector?
The growth in the housing sector will benefit many companies that are directly or indirectly associated with this sector. These may include developers, housing finance companies, banks, cement, steel, paints, utilities and home appliances. Given this huge line-up of beneficiaries, growth in the housing sector has an impact on the economy.
For a lay investor, it is almost impossible to map out all the beneficiaries, locate the strong companies in each of these sectors and then invest in them to benefit from the housing theme. However, an easier way to take exposure to the housing theme is through Housing Opportunities Fund which is being launched by ICICI Prudential Mutual Fund and is open for subscription between 28 March 2022 and 11 April 2022.
In this offering, at least 80% of its corpus will be invested in companies that are associated with the housing theme or are for profit. Some of the sectors in which the fund will invest include developers, civil construction, cement manufacturers, steel, building material companies, housing finance companies, banks, gas and power companies. Since this sector is likely to perform well in the medium to long term, an investor can consider investing to reap the benefits of housing and its allied sectors.
Levy
As the offering will invest minimum 80% of its corpus in equity related instruments, it will qualify as an equity oriented scheme as per the taxation norms. As a result, if your investment is sold after one year your investment will be considered as long term. Profits made on such investments are taxed at zero rate for an initial gain of Rs. 1 Lac. Beyond this limit, it is taxed at the same rate of 10%. If the units are sold before one year, the gain is treated as short-term capital gain and will be taxed at the same rate of 15%. Also, there is an exit load of 1% if the holdings are sold before the completion of one year, reducing your effective returns.
Balwant Jain is a Tax and Investment Specialist and can be contacted at jainbalwant@gmail.com and @jainbalwant on Twitter.
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