A shelter over your head which you can call as your own is one of the most important needs of human being in addition to two other basic needs, namely bread and clothing. The housing sector with allied sectors is one of the major employers of labour force. It also contributes significantly to the GDP of the country.
In this article, I wish to elaborate on why one needs to invest in the housing sector now and also how to go about it.
Why investing in housing sector has become important now?
The housing sector is expected to do well in the near future, so the auxiliary industries will also do well. I feel the following are the major factors which are expected to boost the demand and performance of housing sector and allied industries in the near future.
The population of India is expected to grow till 2050 and the proportion of dependent people is also coming down gradually simultaneously. This trend will help the working population of the country to be better off financially and help them save better generally. Of late real estate as an asset class has gained recognition for investment. A portion of the higher disposal income will find its place in real estate investment, thus boosting the whole of the real estate sector.
India’s urban population for 2017 was 44.97 crore, which grew to 48.19 crore in 2020. The urban population is further expected to grow to 52.50 crore by 2025 and to 600 crore by 2036. The increased urbanisation of population results into increased demand for housing and office space in the future.
Due to career demands, children are setting far away from the place where they were born and separate from parents, which creates additional demand for housing in the country and this is going to accelerate in the time to come.
With “work from home” becoming part of the work culture in India if not fully but at least partly, the working class and specially the working couples are realising the need for bigger houses. This demand for bigger houses will also add to the demand of housing. Moreover with removal of Covid-related restrictions, corporates are taking more office space to accommodate their employees which were surrendered during the Covid period. This will also increase the demand of the office space.
Various government schemes like Pradhan Manti Awaas Yojana (PMAY) and Affordable Rental Housing Complex will boost the demand for housing in the country. The subsidy provided for buying house under PMAY combined with the lowest ever home loan rate will prompt higher demand in this sector.
Due to time correction in the recent past and increase in the earnings during the same period for the past few years have resulted in better affordability for the housing across the country. Moreover, the home loan rates have never been so low, making owning a house more affordable. Both these factors will make the fence sitters to decide to own their dream house sooner than later.
How you can take exposure to housing sector
As explained above, the housing sectors is expected to see a huge growth in the coming years. This will benefit all the companies which are engaged in this sector directly or indirectly, like developers, housing finance companies, banks, cement industry, steel sector, paints industry, utility providers, household appliances etc. The growth of housing sector impacts the economy of a country significantly.
It is not possible for an average investor to select companies from all the main and allied industries impacted by growth of housing sector but you still have the option to invest in the housing sector via a single product. ICICI Prudential Mutual Fund has come out with a new fund offer of Housing Opportunities Fund which is open till 11th April 2022.
This fund will invest a minimum of 80% of its corpus in equity shares or equity products of various companies which are engaged in the sectors which are directly impacted by housing theme. It will invest in developers and civil construction companies, cement manufacturers, steel and building material companies. It will also invest in indirect beneficiaries of growth in housing like housing finance companies, banks, utility companies like gas and electricity companies. Since the housing sector is expected to do good for an extended period to come at least in India, it makes sense for an investor to take a long term call on your investments in this sector to reap the benefits of potentials of housing and its allied sector.
Taxation of Housing Opportunity Fund
As this fund will invest a minimum 80% of its corpus in equity and equity products, it will qualify as an equity-oriented scheme as per taxation norms. Being an equity-oriented scheme your investment in this fund will become long term if you sell your investments after one year and the profits made on such investments gets taxed at zero rate for initial profit of 1 lakh and beyond one lakh it gets taxed at flat rate of 10%. If you sell your investments in this fund before your investment completes one year, the profits are treated as short term capital gain and gets taxed at flat rate of 15%. Please note in case you redeem your investment in this fund before completion of one year, the fund house will charge you an exit load of 1% and thus reduce you effective returns.
(The author is a tax and investment expert and can be reached at [email protected])