Improving affordability for homebuyers in the middle- and low-income groups, finance minister Pranab Mukherjee on Monday raised the housing loan limit under the existing interest subvention scheme to Rs15 lakh from the existing Rs10 lakh.
Homebuyers in these categories will continue to get 1% interest subsidy for bank loans up to Rs15 lakh provided the cost of house does not exceed Rs25 lakh. The existing interest subsidy is on loans up to Rs10 lakh where the cost of house is up to Rs20 lakh.
R.V. Verma, chairman and managing director, National Housing Bank, said, “The two important measures in the Union Budget, enhancement of the limit in the priority sector lending and increase in the loan limit up to Rs15 lakh under the interest subvention scheme will help banks to lend more to those who need housing at affordable rates.”
The enhancement of the limit under the interest subvention scheme would help generate demand for housing and improve affordability of housing to eligible borrowers in the middle and lower income groups. Pranab Datta, vice-chairman and managing director, Knight Frank India, a market consultancy firm, said: “During the last one year, prices of residential real estate has increased by 10-20% across several cities. The enhanced limit for interest subvention will ensure continued benefit to the buyers of this particular segment.”
To take note of rising property prices in the cities, the finance minister increased the limit of priority sector lending for housing in urban areas to Rs25 lakh from the existing Rs20 lakh. As per the existing norms, direct loans up to Rs20 lakh in urban and metropolitan areas come under priority sector lending. Loans granted to individuals for purchase or construction of dwelling units, provided the housing loans granted by housing finance companies do not exceed Rs20 lakh per dwelling unit per family, are eligible to be classified under priority sector.
Although the measure will ensure credit flow at relatively cheaper interest rate to buyers in the low income group, the move will not help homebuyers in those metro cities where property rates are at the levels of 2007-2008, when the country witnessed a boom in the property market. Said Jai Mavani, executive director-infrastructure and real estate at the audit firm, PricewaterhouseCoopers India, “This would help borrowers in tier II, III cities and in the suburbs. However, as property rates in cities such as Delhi, Mumbai and Bangalore remain above the limit of priority sector loans, homebuyers in these cities will continue to face problems due to rising property rates.”
To provide housing finance to these groups in rural areas at competitive rates, the government has also increased the provision of Rural Housing Fund to Rs3,000 crore from the current amount of Rs2,000 crore. To make lending easier for buyers in the economically weaker section (EWS) and low-income groups (LIG), the government will also set a Mortgage Risk Guarantee Fund under the Rajiv Awas Yojna. This would ensure housing loans are taken by EWS and LIG households and enhance the creditworthiness of homebuyers in this category.
Sanjiv Bajaj, managing director of financial planning firm, Bajaj Capital Ltd, said, “Banks and financial institutions were reluctant to lend to LIG and EWS segment on account of poor repayment capability. However, this provision will help the LIG and EWS buyers in borrowing.”
Analysts said although these measures will help borrowers, rising interest rates will remain a challenge. “As interest rates are hardening, it will take some quarters to understand the actual benefits of these sops,” said Shobhit Agarwal, director of consultancy firm, Protiviti Consulting Pvt. Ltd. “If the interest rates continue to rise in coming months, lending may get affected.” While the real estate industry was expecting some sops relating to the tax holidays under section 80 IB, the government has encouraged the development of affordable housing by announcing an investment-linked deduction to businesses developing affordable housing.