Awas to suit Centre HYDERABAD, DEC. 31
Experts feel new housing scheme does not have much to offer
Concessions on interest rate offered by Prime Minister Narendra Modi on home loans availed by lower income groups in cities appear to have been drafted craftily to avoid any increase in the government’s expenditure.
In his address to the nation on Friday, Mr Modi said, “Two new middle income categories have been created under the Pradhan Mantri Awas Yojana in urban areas. Loans of up to `9 lakh taken in 2017 will receive interest subvention of four per cent. Loans of up to `12 lakh taken in 2017, will receive interest subvention of three per cent.”
Pradhan Mantri Awas Yojana (Urban) is a scheme started by the Modi government in 2015 to provide affordable housing in cities for low income groups by providing them credit-linked subsidy.
The scheme comes under the ministry of housing and urban poverty alleviation project.
Prior to Mr Modi’s statement, eligible borrowers could have claimed 6.5 per cent interest rate subvention on a home loan not above `6 lakh. Interest rate subvention means a part of interest would be borne by the government.
On the first look at the Prime Minister’s statement, it appears to suggest that the government has increased the upper limit for the LIG housing and hence the poor will get more interest benefit from the government. However, there is a catch.
Supposing a person had availed a `6 lakh home loan under the previous scheme, the government would have paid 6.5 per cent interest on his behalf — i.e. `39,000 in absolute numbers.
If the same person had taken a loan of `9 lakh under the scheme announced by Mr Modi, the government would pay four per cent interest on his behalf — i.e. `36,000. Similarly, if he had taken a loan of `12 lakh, he would get three per cent interest sop, which again amounts to `36,000.
If the government opts for a slab-wise interest rate subvention, the borrowers would have gained more.
“The existing interest rate subvention is for 6.5 per cent for a home loan of `6 lakh. From Saturday’s announcement, we don’t know how the new interest rate subvention would be applied. For a loan of `9 lakh, would the government give a 6.5 per cent subvention till `6 lakh and give a four per cent subvention on the remaining `3 lakh? Or would the government apply four per cent subvention on the entire home loan amount of `9 lakh? We don’t have finer details. However, we welcome the Prime Minister’s initiative,” said C. Sekhar Reddy, past national president of Confederation Real Estate Developers Associations of India (Credai).
According to a circular issued by the ministry of housing and urban proverty alleviation dated December 19, 2016, the existing scheme announced by Mr Modi in 2015 also allows people to avail loans on subsidised interest rate even for enhancements or extension to the existing house.