4 min read.Updated: 28 May 2020, 12:25 PM ISTSrinath Sridharan
The government expects extension of Credit Linked Subsidy Scheme to 31 March, 2021 to benefit over 2.5 lakh families
With 3.3 lakh families benefiting in 3 years, the government expects almost the same number to benefit by end of FY21
The government in May 2017 introduced a Credit Linked Subsidy Scheme (CLSS) to encourage the lower middle income (LMI) and economically weaker sections (EWS) to buy a house of their own by taking a loan. The scheme was originally propounded under the Pradhan Mantri Awas Yojana (PMAY) under the aegis of the Ministry of Housing and Urban Poverty Alleviation (MoHUPA).
The scheme had ended on 31 March this year but its tenure was extended till 31 March next year as part of the government’s Rs20 trillion financial stimulus package to restore the health of the covid-19-struck economy. The government has pegged the stumulus under the extendedscheme to be Rs3 trillion.
The scheme allows home loan borrowers to avail interest-subsidy of up to Rs2.67 lakhs per family, for purchasing their first home. The final amount of subsidy depends on the applicant's annual income in the previous fiscal, loan amount and the size of the house. This subsidy amount is passed on to the customers and is reduced from the loan principal amount is reduced and consequently, the Equated Monthly Installment (EMI) amount reduces.
During her 13 May-17 May announcements on the financial package, Finance Minister Nirmala Sitharaman, while announcing the extension of the scheme to next year, mentioned that the CLSS had benefited over 3.3 lakh families since the scheme was launched nearly 3 years ago. The minister also stated that over 2.5 lakh families will benefit from the extension of this scheme. This assumes that almost similar number of families who had borrowed over 3 years would borrow (home loans) within the next 10 months.
The ministry has also estimated that by extending this subsidy scheme, over Rs70,000 crore of fresh real estate investments would happen in the affordable housing space and that it would offer job creation and lead to a quick spur in demand for steel/cement/other construction materials.
From the demand side, this view of the government assumes that lower middle class and EWS consumers would prioritise buying a house in such a chaotic and insecure economic situation, over all other priorities of theirs.
Sufficient data is not available to showcase how many such CLSS customers even have access to health insurance, so that they have one less financial worry, before they think of buying a house. With job losses, health issues, and poor liquidity in the market, LMI & EWS consumers become risk-averse in making new purchase decisions. Also sentimentally in a crisis, people take loans to revive businesses and for livelihood. Housing loans could well see a sentimental dip.
On the supply side, developers have been bleeding over past few years, especially after the introduction of Real Estate Regulatory Authority, demonetization and slowdown in the financing space since September 2018. This is because some of these developments structurally altered the business model of realty development in India. Add to it the delays in procuring approvals for construction and the cost of “off the book" expenses for the same in most geographies.
This makes the concept of affordable housing unattractive for large developers, as the project incubation time is the same as those projects that are focused on higher ticket sizes. Land, being a state subject, leads to challenges on the ground that are varied and plenty, depending on the geography. These have put most of the mid-sized and smaller developers out of business in the past few years.
Housing finance companies (HFCs) and non-banking finance companies (NBFCs) have financed the bulk of real estate development in India. They have been in pain since the industry meltdown of September 2018. The debt markets in India remain shallow and so the avenues left to fund the projects are largely either borrowing from banks or mutual funds. And with the mutual funds shying away for almost two years now and the banks not wanting to lend to HFCs and NBFCs for realty, the source of liabilities pool for the non-banks is restricted.
The moratorium that the Reserve Bank of India granted last month and extended last week, as part of covid-19 relief, is effective for the consumers who borrowed from banks and non-banks. The same relief is not available to borrower banks and non-banks, which adds further stress to their balance sheet. Simply put, they are supposed to give relief to their borrowers as per the regulator but they don’t have reciprocal benefit under the same rule.
This forces those entities to safeguard every rupee to keep it away, to pay for their repayment obligations (instead of lending to the consumers), failing which, the rating agencies would take negative rating action and downgrade their debt. Any rating action would hurt their prospects in the near future to raise further debt and/or the pricing of such a debt. Also, the listed banks & non-banks have the challenge of managing perceptions which hurt their stock valuations.
A mere chat with the HFCs would also bring about the delays that they have faced in getting the refinance amounts from National Housing Bank (ex-regulator and current nodal refinance agency for HFCs). It is high time, that a regulation is brought, to make good the added burden of interest amount lost that the HFCs face on account of such delays.
Similarly the HFCs have had to wait to get from the government the CLSS amounts that they give to their borrowers upfront. Even a two-three quarter delay is a few percentage points of interest cost. In a market where the best-in-class HFCs get just above 3% NIM (net interest margin), it translates into a substantial loss in their bottomline. It would be positive push for the HFCs if the subsidies are reimbursed in a time-bound manner.
Unless supply & demand side issues are resolved in the realty financing space, investor sentiment will not increase just because the consumers get subsidies. And fresh investments cannot be sought on the back of such subsidies alone.
Now, where is the stimulus for generating either consumer demand or investor sentiment? And where is the “real" in realty?
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