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With the implementation of the 7th pay commission, realtors expect a positive sentiment in the real estate sector. This segment is one of the most favorable areas for the government employees to park their money in. “It’s a very good decision. Hopefully, it will lead to wise investment by the government staff for buying homes” – Chairman NAREDCO. Before proceeding ahead, let us see what the Pay Commission is?
Pay Commission is a mechanism set up by the Indian Government to determine the changes in the salary structure of its employees
Recommendations from the 7th Pay Commission
The 7th pay commission proposed to reduce the level of House Rent Allowance (HRA) as a proportion of basic pay while recommending a considerable increase in basic pay. An earlier fixed HRA for Central Government employees at 30%, 20% and 10% for Class X, Y, and Z cities respectively now stand reduced to 24%, 16%, and 8% respectively.
Despite the reduced proportion of HRA in the basic pay, the revised pay scale would increase the basic pay itself, therefore effectively increasing the overall HRA amount. For example, say an employee who used to have a basic pay of Rs.7,000 per month was entitled to a 30% HRA of Rs.2,100 in city X. However, with the revised scheme of things, the employee’s basic pay would increase to Rs.18,000 per month, and therefore the HRA amount would increase to Rs.4320 or 24% of basic salary.
|Classification Of Cities||X Category Cities||Y Category Cities||Z Category Cities|
|7th Pay Commission HRA Rates||24.00%||16.00%||8.00%|
|Condition for city categorisation||Population 50 Lakh and Above||Population 5 Lakh – 50 Lakh||Population Below 5 Lakh|
|* Source Financial Express|
Reduced HRA rates are not adequate for employees coming in lower pay section, so it is concluded that minimum HRA will be Rs. 5400, Rs. 3600 and Rs. 1800 for X, Y and Z category of cities respectively.
Impact on India’s Real Estate
Government employees prefer real estate to park their surplus money in. In fact, a study of the assets of Union ministers reveals that most of their money is invested in immovable properties. A hike in salary and a resulting increase in surplus for more than one crore government employees directly impacts the real estate market. This growth might help breathe fresh life into the property market which has suffered a slump in the past few years.
Among the total beneficiaries of the 7th pay commission recommendations, about 58 lakh are pensioners. These pensioners are also expected to bring in more liquidity into the real estate market, and demand for retirement homes in India.
Many experts believe that the affordable housing segment shall witness a lot of investment from the beneficiaries of the pay commission hike. In case of people already owning homes, the demand for land investment is expected. Many believe that tier II and tier III cities like Noida, Pune, and Navi Mumbai shall observe an increase in demand for mid-income or budget homes.
7th pay commission coupled with other positive factors is giving a boost to real estate
The government has also announced several lucrative schemes like Credit Linked Subsidy Scheme (CLSS) under Pradhan Mantri Awas Yojana (PMAY) to boost affordable housing. Positive sentiments around many upcoming construction projects and with the introduction of RERA, the real estate market has already been set to gear up for growth. With higher pay packets, potential home buyers sitting on the fence can commit to an investment now onwards.
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