How to benefit from the housing turnaround story
Premium- Some mutual funds have launched Housing Opportunities Fund which invest in the housing theme
A shelter, which you can call your own, is one of the most important needs of a human being in addition to two other needs namely food and clothing. Even in terms of generating employment, housing along with allied sectors emerges as one of the biggest employers of the labour force. As a result, they have a significant contribution towards the GDP of the country. In the times ahead, as the economy comes off the pandemic impact, housing is expected to turn around. So, how can you as an investor stand to gain from this turnaround story?
Why invest in housing sector now?
It is widely believed that housing is at the cusp of a turnaround. If that be the case, then a plethora of allied industries too stand to gain. In my opinion, following are the major drivers which could boost the demand and performance of housing and allied industries.
To begin with, the population of the country is expected to grow till 2050, owing to which the proportion of dependent people is expected to come down. At the same time, working population is expected to be better off financially on account of higher income and savings at their disposal. Since real estate is an emotional need and an asset class every individual identifies with, it is very likely a sizeable portion of these savings will find its place in real estate investment.
Apart from this, India’s urban population is projected to grow from 48.19 crore in 2020 to 52.50 crore by 2025 and to 60 crore by 2036. This is likely to translate into increased 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 realised the need for bigger homes. This will further push demand for bigger houses.
Various government schemes like Pradhan Manti Awaas Yojana (PMAY) and Affordable Rental Housing Complex too is likely to boost demand for housing projects in the country. This is because the subsidy provided for buying a house under PMAY combined with the lowest ever home loan rate could prompt higher activity in the housing sector.
Along with all these factors, time correction in the recent past coupled with increased earning during the same period has resulted in better housing affordability among the masses. Moreover, record low home loan rates have made owning a house more affordable. Both these factors put together could make any fence sitter to implement their deferred decision.
How to take exposure to housing sector?
A growth in housing sector will stand to benefit several companies which are directly or indirectly engaged with this sector. These could range across developers, housing finance companies, banks, cement, steel, paints, utility and household appliances to name a few. Given this huge line-up of beneficiaries, growth in housing sector has a domino effect on the economy.
For a lay investor, it is close to impossible to map out all the beneficiaries, find out robust companies across each of these sectors and then invest in them to benefit from the housing theme. However, there is an easier way to take exposure to the housing theme through a Housing Opportunities Fund which is being launched by ICICI Prudential Mutual Fund and is open for subscription between 28th March 2022 and 11th April 2022.
In this offering, a minimum of 80% of its corpus will be deployed in companies which are engaged or stand to benefit from the housing theme. Some of the sectors the fund will take exposure to includes developers, civil construction, cement manufacturers, steel, building material companies, housing finance companies, banks, gas and electricity 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.
Taxation
Since the offering will invest minimum 80% of its corpus in equity related instruments, as per taxation norms it will qualify as an equity oriented scheme. As a result, your investments will be considered as long term if it is sold after one year. The profits made on such an investment gets taxed at zero rate for initial profit of Rs. 1 lakh. Beyond this threshold, it gets taxed at a flat rate of 10%. If the units are sold before one year, profits are treated as short term capital gain and will get taxed at a flat rate of 15%. Also, there is an exit load of 1% if the holdings are sold before completion of one year, thus reducing your effective returns.
Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on Twitter.
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