PM's incentives may bring millions into affordable housing

2017 started on a good note for Suresh Yadav who has been looking to buy a house in Badlapur (near Mumbai) since over a year now.

Having identified a one-bedroom apartment a few months ago, he has been working tirelessly to organise own contribution and plans to register the property in a few days from now.

The new schemes announced by Prime Minister Narendra Modi on New Year Eve for the housing sector in the urban and rural areas will help Yadav as he is also looking to avail a home loan of Rs 11 lakh. While earlier he would have had to pay a higher rate of interest (depending on loan from bank or NBFC). That will change with the government's new scheme of 3% subsidy on his loan amount.

"The new scheme indefinitely increases my possibility of availing a housing loan while also giving me additional savings. This is the best new year gift from the government for people like me," said Yadav.

On December 31, PM Modi had announced additional subsidy on the rate of interest for home loans. He said that the government will facilitate 4% and 3% interest rate rebate for housing loans up to Rs 9 lakh and Rs 12 lakh, respectively. Additionally, loans of up to Rs 2 lakh for new housing or extension of housing in rural areas will receive an interest subvention of 3%.

Sandeep Singh, CEO of Sheltrex Developers P Ltd, said that the government has widened the scope of the existing Credit Linked Subsidy Scheme (CLSS), which is already a part of PMAY.

"The earlier limit of the loan was Rs 6 lakh and now the government has expanded the range and reach of that scheme. However, final details such as restrictions on income, size of the housing units and other eligibility criteria, etc are still awaited to understand its effectiveness. Having said that, the impact of this move will be far and wide because it is aimed towards the lower portion of the social pyramid where the base is extremely wide," Singh said.

Also, when coupled with the anticipated drop in interest rates for housing loans, this subsidy scheme will ensure millions become eligible for home loans, Singh, who is developing three affordable housing projects (in Karjat, Coimbatore and Chennai) with another three projects (in Neral, Kasara and Khopoli) in the pipeline, said.

Rohit Gera, managing director, Gera Developments & VP, CREDAI - Pune Metro, said the inclusion of loans of Rs 9 and Rs 12 lakh under the Pradhan Mantri Awas Yojana (PMAY) scheme will boost demand for homes under the affordable housing in urban areas and provide much-needed push to the realty sector.

"I hope the prime minister soon announces a slew of measures to stop the regeneration of black money and to address the issue of corruption that continues unabated," added Gera.

Industry experts said that through new measures for the housing sector, Modi has charted a roadmap for the economy for 2017. "He addressed the affordable housing segment – a welcome move that will benefit people with lower incomes. Currently, loans up to Rs 6 lakh are covered under PMAY where they receive a 6.5% subsidy. This (the new scheme) will benefit home buyers," Kirti Timmanagoudar, managing partner, Brick Eagle India Affordable Housing Fund, said.

Also, more economically weaker section (EWS) and lower income group (LIG) families would now come under the ambit of PMAY schemes, which augurs well for the lending sector as well.

"This announcement is particularly important as housing sector in rural areas is also given that much required additional support. This will increase the formal credit flow to rural areas which is expected to be utilised not only for constructing new houses but also for converting the existing 'kuccha' houses to 'pucca' ones and for housing related additional construction to the existing structure (improvement and extension).

"This demand side cushion in the form of formal credit from financial institutions will go a long way in reducing the rampant dependency on informal sources that charge exorbitant interest rates," said Anil Sachidanand, MD & CEO, Aspire Home Finance Corp Ltd (AHFCL) - a subsidiary of Motilal Oswal Financial Services Ltd.

"Going ahead, we wish that the loan amount for concession announced under PMAY rural be further increased from Rs 2 lakh to Rs 5 lakh so that majority of the residential housing sector in rural areas gets covered," he said.

While the government's initiatives will play a catalyst's role in demand generation, the realty sector is also of the view that similar intervention is also required on the supply side so that more and more people are able to benefit from such measures. "We are keen to see what's in store on the supply side, that is, New Year sops for affordable housing developers. We believe Modi's policies should also focus on encouraging developers to build more homes for lower income groups and the middle class," said Brick Eagle's Timmanagoudar.