New Delhi: National Housing Bank (NHB) is planning to offer a special refinance scheme to mortgage lenders for loans to low-income groups in a move that is likely to create a long-term market for fixed-rate housing loans and boost affordable housing.
Lenders, including housing finance companies, will use the funds from NHB to offer loans to low-income borrowers at concessional fixed interest rates and insulate them from the volatility of rates.
“The NHB board has recently approved this refinance scheme for providing loans to low-income households to buy affordable houses,” said R.V. Verma, chairman and managing director of National Housing Bank. “It should be rolled out from the next fiscal.”
Under the refinance scheme, borrowers with an annual income of up to Rs.2 lakh can get a 15-year loan from banks or housing finance companies at concessional fixed interest rates. This scheme will facilitate purchases of houses costing around Rs.10 lakh.
“There will be a cap on the lending rate so that a long-term, fixed-rate market for these people who cannot absorb this volatility of floating rate is created,” Verma said. “Also, this long-term, fixed rate will be available to them at a relatively lower rate as compared to the market.”
NHB will lend to banks and mortgage lenders at 150 basis points less than its prime lending rate, which will work out to around 8.5%. Currently, banks are lending at 11.5%. One basis point is 0.01 percentage point.
With a credit guarantee cover from the ministry of housing, banks will be in a position to lend at around 9.25%, Verma said.
The credit guarantee fund, which was set up in August 2012 with a corpus of Rs.1,000 crore, will guarantee housing loans up to Rs.5 lakh.
NHB expects that the huge demand for low-income housing will prompt builders to offer houses in the Rs.10-15 lakh range on the outskirts of cities and towns.
Analysts are, however, sceptical about the success of the scheme.
“At present, there is a shortage of 19.78 million housing units, 95% of which are in the LIG (low-income group) and EWS (economically weaker section),” Neeraj Bansal, director, risk consulting, KPMG. “Since the cost of land has become too much for metros as well as non-metro cities, if there is a viable business model that can be agreed upon by the government and the real estate community, the developers would want to come back in this area because the demand is there. For example, if the government starts providing subsidy for land area or changes policies to cut costs, and developers use new and efficient technologies to reduce costs, this demand can be met.”
Shobhit Agarwal, managing director, Protiviti Consulting Pvt. Ltd, said that though there is demand, supply may not match it.
“There is a demand for low-cost housing, but whether it is in the bracket of Rs.10-15 lakh, it may be difficult to determine. Industrial areas like Manesar, Greater Noida, Sanand in Gujarat or Chikmagalur in Chennai are seeing a huge demand in housing for LIG and EWS. These industrial complexes will create local demand as labour migration continues,” Agarwal said.