Gov Aid In Housing Loan Subvention Promotes Housing For All

While the demonetization disruption took a heavy toll on the residential market, the onset of 2017 proved to be a big relief for wary home buyers. The recent interest subvention scheme announced by the government on home loans up to Rs 12 lakh and Rs 9 lakh came as a huge surprise for realtors and cheered prospective buyers.

Anticipated as a huge leap towards "Housing for All by 2022", the move is likely to boost affordable housing in urban peripheries.

Bogged down by the demonetization drive, while the countrymen were anticipating another jolt from the government, the provision of subsidised housing for the urban and rural poor along with various other measures, came as a boon. In the recent address to the nation, the central government introduced two new housing schemes under Pradhan Mantri Awas Yojana (PMAY).

The first scheme includes 4 percent interest waiver on loan up to Rs 9 lakh and 3 percent relaxation on loan up to Rs 12 lakh in urban areas. The second scheme extends to rural areas and includes 3 percent subvention on housing loans up to Rs 2 lakh acquired for expansion and renovation of the existing house property. Additionally, the government also decided to increase the number of homes to be built in rural areas under PMAY by 33 percent, in the pursuance of the commitment to "Housing for All by 2022".

Largely to benefit the economically weaker and backwards sections of the society, the move would provide a major boost to affordable housing. With approximately 90 percent of homebuyers dependent on banks and financial institutions for buying and constructing activities, the market demand is likely to witness an upswing in the forthcoming quarters.

Housing market across all major metro cities would foresee a change, especially towards the peripheries. Micro-markets such as Moshi, Chikhali and Akurdi in Pune will see the good demand for housing projects in the affordable category. In Delhi NCR, areas such as Noida Expressway, Neemrana, Bhiwadi and Yamuna Expressway are anticipated to remain popular owing to cost-effective residential stock in comparison to that in city centres. Other markets, such as Hyderabad, Bangalore, Ahmedabad, Chennai, Kolkata and Mumbai would also experience improved demand for low-cost houses with an average loan size varying from Rs 9 lakh to Rs 12 lakh, majorly primarily around the city fringes.

Interestingly, the move has diminished the monthly instalment amount and relieved the common man who has invariably refrained from buying a home owing to the fear of huge EMIs. While the existing credit-linked subsidy scheme permits the beneficiary to avail a house loan at the rate of 6.5 percent for the tenure of 15 years or during the tenure, whichever is lower on the preliminary Rs 6 lakh, the recent move has further reduced the lending rates. EMIs have fallen by 40 percent making home purchase a hassle-free and affordable activity for EWS and low income groups (LIG). Prospective buyers will be now be able to borrow at 4.60 percent or 5.60 percent for loans up to Rs. 9 lakhs and Rs. 12 lakhs respectively.

With banks carrying high volume of liquidity due to the 50 days of demonetisation this is just the start. It was well forecasted that rate cuts will begin soon. RBI’s next policy review is due in February as well as the Union Budget 2017-18 is to be announced. Hopes are high for more rate cuts in near future which will further ease the pressure off the economy and allow greater spending.