There is already a shortage of such projects eligible under PMAY and this expansion of the beneficiary list is likely to increase the shortage of projects qualifying under this scheme
Our prime minister made many significant announcements when he addressed the nation on December 31, 2016 which was 53 days after demonetization. One of them was regarding the expansion of the credit-linked subsidy scheme for affordable homes to a much wider section of the population. The details of the scheme are ready but could not be announced reportedly because of the ongoing assembly elections.
Let’s understand why this announcement is likely to have a more direct impact on people. The current scheme is for households having an annual income of Rs 6 lakh. Household is defined as husband, wife and unmarried children, and if their combined income is less than Rs 6 lakh and they own no other pukka house anywhere in India, and if they buy a house in an affordable home project approved under the Prime Minister Awas Yojana (PMAY), by taking a home loan of Rs 6 lakh or more from an approved financial institution. If such is the case, they are eligible to get a sum of Rs 2.23 lakh through their home loan lender. This amount is credited to the home loan account of the borrower.
The size of the house cannot exceed a carpet area of around 650 square feet or a comfortable two BHK flat. There are no restrictive conditions regarding the cost of the house or lock-in time for the house in a bid to check possible misuse of the subsidy. Instead, in a move towards women empowerment and responsible borrowing, the scheme requires that the house be compulsorily owned or co-owned by the women of the house. The subsidy is a direct arrangement between the home loan lender and the central government and the home buyer is not required to co-ordinate with government agencies for obtaining the same.
A household having income of around Rs 50,000 per month typically will buy a house around Rs 20 lakh with a loan of around Rs 15 lakh. For them, it means the government is bearing around 10% of the housing cost. It’s a scheme that is working quite well though the number of households eligible for it has been restricted due to the household income being limited to Rs 6 lakh per annum.
The scheme is now being revised with the subsidy amount being hiked to Rs 2.40 lakh. But, much more importantly, it will cover households with income up to Rs 18 lakh per annum (or Rs 1.50 lakh per month). Household income data is not easily available but, by most accounts, that cut off should cover more than 95% of all Indian households, if not more. Effectively, from among these households, all those who do not already own a pukka house will become eligible for this scheme and there will be a surge in demand for homes in such approved affordable home projects.
There is already a shortage of such projects eligible under PMAY and this expansion of the beneficiary list is likely to increase the shortage of projects qualifying under this scheme. The government will seriously need to work on the supply aspect if the scheme has to succeed. The sum of Rs 2.40 lakh per household will tilt the balance in favour of buying your own house rather than staying on rent.
Couples will automatically form a new household when they get married, the combined income of most such couples is likely to be lower than Rs 18 lakh per annum, and they are unlikely to be owning a pukka home anywhere in India. Home loan companies already sanction home loans to couples who propose to get married soon, though such sanctioned loans are disbursed only after the couple gets married. The PMAY should be amended to allow such loan sanctions to also confirm the eligibility of the couple for the sum of Rs 2.40 lakh on getting married and buying the home in the eligible home. Of course, as usual, the actual disbursement happens only after the marriage. This small tweak in the PMAY will allow every middle class Indian couple to invite the prime minister to their marriage where the PMAY eligibility certificate can be delivered as a wedding gift. The other guests at the wedding can add to this gift by gifting towards the purchase of the house. Gifts received on the occasion of marriage are not treated as income even by the Income Tax Department.
Harsh Roongta is a CA and Sebi-registered investment advisor. Send your queries to personalfinance@dnaindia.net or tweet them to @AskHarshdna
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