Synchronising bank regulations with PMAY may lead to lower prices

The Reserve Bank of India’s (RBI’s) revisions to the income cap limits for priority sector lending (PSL) for housing projects will increase the customer base for affordable housing loans and bring down home prices, said developers and investors Business Standard spoke to.

On late Tuesday evening, the RBI revised the family income limits for economically weaker sections (EWS) and low income groups (LIG) availing of housing loans from ~200,000 per annum to ~300,000 per annum and ~600,000 per annum, respectively.

“The RBI’s move will increase the demand for affordable housing loans from families under EWS and LIG categories. The government and its agencies are seeing a huge demand from middleincome groups (MIG), LIG, and EWS families and are working on providing the most beneficial rates for the eligible borrowers,” said J C Sharma, vicechairman of the Bengaluru based property developer Sobha.

In its first bi-annual monetary policy statement this fiscal year, the RBI revised its PSL guidelines for housing loans to be in convergence with the Pradhan Mantri Awas Yojana (PMAY), the government’s flagship affordable housing scheme.

Housing loan limits for affordable housing loans to be categorised under bank’s PSL obligations were revised to ~3.5 million in metropolitan centres (with population of 1 million and above) and ~2.5 million in other centres as long as the overall cost of the dwelling unit does not exceed ~4.5 million in metros and ~3 million in other centres, respectively.

Amit Goenka, managing director of Nisus Finance Services, said, “The RBI’s move increasing income limits will be synchronised with the home loan policy under the PMAY. There was not an effective translation into home loan disbursals under the PMAY because of the income cap definition. This can also lead to reduction in prices (affordable flats and of loans) as more people will qualify for incentives under PMAY.”

Gagan Banga, vice-chairman and managing director at Indiabulls Housing Finance, said, “The extension of the priority sector benefit to housing loans is a move in the right direction, enabling an even larger part of housing finance company portfolios to qualify as priority sector loans for banks - which are regular buyers of such pools of loans.”

According to the RBI data, the value of outstanding home loans classified under PSL grew from ~3.02 trillion in 2013-14 to ~3.76 trillion in 201718. However, the share of affordable housing loans from the total pool of PSL loans decreased from 16.51 per cent in 2013-14 to 14.71 per cent at the end of 2017-18.

The Ministry of Housing and Urban Affairs in a release last week said that as of June 11 this year, around ~7.36 billion worth of affordable housing loans were disbursed to 35,204 beneficiaries in the MIG category.

“While the RBI has always had a window under which affordable housing projects can classify as PSL, I do not know of a single project in the country that qualifies. What will really make a difference is if the price of housing units (project loans to qualify under PSL) changes from ~1 million at present to ~4.5 million. This will be in line with the definition used for home loans,” said Rajesh Krishnan, chief executive officer at the Brick Eagle Group.

Affordable housing loans, classified under PSL, fell from a year-on-year growth rate of 13.02 per cent between 2012-13 and 2013-14 to 1.97 per cent between 2016-17 and 2017-18.

Clearly, the PMAY and the interest under the creditlinked subsidy scheme (CLSS) have not bolstered growth of the affordable housing loan segment as was expected.

To address this issue, on June 13, the government enhanced the carpet area of houses eligible for interest subsidy under the CLSS from 120 square metres (sq. m) to 160 sq. m for families under MIGI, and from 150 sq. m to 200 sq. m for families under MIGII. The enhancement of the carpet area of flats qualifying as affordable housing will contribute to increased supply of such houses, while more MIG customers will qualify for the subsidy under the PMAY, say experts.

“Property developers can sell faster in urban and rural areas and there will be higher sales velocity as more people will come under the eligibility bracket,” said Goenka.

On late Tuesday evening, the RBI revised the family income limits for economically weaker sections (EWS) and low income groups (LIG) availing of housing loans from ~200,000 per annum to ~300,000 per annum and ~600,000 per annum, respectively