Govt doubles loan amount for interest subsidy

Details on property value and eligibility criteria still awaited, say experts

PRADHAN MANTRI AWAS YOJANA

IN A boost to the affordable housing and middle income category of the housing sector, Prime Minister Narendra Modi had on Saturday doubled the quantum of loan amount that can qualify for interest benefit under the Pradhan Mantri Awas Yojana (PMAY) for Urban areas in 2017. In addition to this, he also announced a 3 per cent interest subvention for loans of up to Rs 2 lakh in the rural areas, taken for either new home or extention of housing.

The scheme, initially launched by the Prime Minister in June 2015 to provide ‘Housing for All by 2022’, offered beneficiaries an interest subsidy at the rate of 6.5 per cent for a loan amount of up to Rs 6 lakh. The scope of the scheme has now been enhanced to loans of up to Rs 12 lakh with interest subvention of up to 4 per cent.

“Two new middle income categories have been created under the Pradhan Mantri Awaas Yojana in urban areas. Loans of up to Rs 9 lakh taken in 2017, will receive interest subvention of 4 per cent. Loans of up to Rs 12 lakh taken in 2017, will receive interest subvention of 3 per cent,” the Prime Minister said in his speech on Saturday. He further added that for the rural areas, “Loans of up to Rs 2 lakh taken in 2017, for new housing, or extension of housing in rural areas, will receive an interest subvention of 3 per cent.”

While the interest rate on home loans currently stands at around 9 per cent, an interest subsidy of 4 per cent on loans of up to Rs 9 lakh means the effective rate of interest would be 5 per cent and, thus, substantial savings on EMI for individuals.

Illustratively: An individual taking a 15year loan of Rs 9 lakh would save Rs 2,011 in EMI every month on account of 4 per cent lower interest rate as his EMI will come down from Rs 9,128 to Rs 7,117. Similarly, an individual taking a loan of Rs 12 lakh under the scheme will save Rs 2,044 in EMI on account of the 3 per cent lower interest rate.

Banks and Housing finance companies have welcomed the move. Gagan Banga, vice-chairman and managing director (MD), Indiabulls Housing Finance, said: “The Prime Minister has effectively made the EMI cheque smaller than the rent cheque for the affordable housing segment — a tremendously positive announcement coming on the back of many directed steps to realise the “Housing for All” objective.”

Anil Sachidanand, MD & CEO of Aspire Home Finance, said that the move would bring more families in the ambit of PMAY scheme. “Through this as more number of EWS/LIG families would now come under the ambit of PMAY schemes…. This will increase the formal credit flow to rural areas which is expected to be utilised not only for constructing new houses but also for converting the existing kutcha houses to pucca ones.”

Evenastheprimeministerhasannounced the scheme for 2017, industry experts say that thegovernmentisyettocomeoutwithdetails on the value of property and household incomeeligibilitycriteriafortheschemefor2017.

Earlier in August, Sriram Kalyanaraman, MD and CEO of National Housing Bank had said that demand for houses in sub-rs 10 lakh category were driving growth for the housing finance sector in 2015-16. “It is probably for the first time that loans of under Rs 10 lakh with both banks and housing finance companies accounted for over 30 per cent of the total loans. The focus is definitely shifting towards the lower segment of the market,” he had said.