To encourage first-time homebuyers and make affordable housing a reality, the government has approved an increase in the carpet area of houses eligible for interest subsidy under Pradhan Mantri Awas Yojana (PMAY). PMAY aims to address the shortfall of nearly 20 million housing units needed by the rural and urban poor.
Launched in June 2015, the PMAY scheme included building affordable houses with water facility, sanitation and electricity supply. It was originally meant for economically weaker sections, but now covers the mid-income group (MIG) as well.
The PMAY scheme aims to transform slum areas by building homes, and plans to give a credit-linked subsidy on loans taken for new construction or renovation of existing homes. Under the scheme, the government provides financial assistance for housing projects and extends direct financial assistance to the beneficiaries. The housing units will have lower price points of Rs. 5-15 lakh. Now, with the increase in subsidised loan amount to Rs. 12 lakh, the scheme is expected to cover a higher proportion of the urban poor. It is hoped that PMAY will give the required fil lip to India’s construction and realty sector and also reduce its fixation with affluent home buyers in the cities.
Early this month, the government amended some of the features of PMAY to increase benefits for poor people availing housing loans, and introduce a new interest subsidy scheme for MIG borrowers. The amended features include:
- Increase in the carpet area for the MIG-I category from the existing 90 square metre to up to 120 square metre.
- Increase in the carpet area for the MIG-II category from the existing 110 square metre to up to 150 square metre.
- Extend the coverage to include the following two income segments: 6 lakh to Rs. 12 lakh (MIG-I) and Rs. 12 lakh to Rs. 18 lakh (MIG-II).
- Allow an interest subsidy of 4% for loan amounts up to Rs. 9 lakh (MIG-I) and an interest subsidy of 3% for loan amount of Rs. 12 lakh (MIG-II). However, housing loans above 9 lakh and 12 lakh will be at non-subsidized rates.
- Calculate the interest subsidy at 9% NPV for maximum of 20 years loan tenure or the actual tenure, whichever is lesser.
In other words, PMAY reduces the cost of acquiring a home by Rs. 1 lakh to Rs. 2.3 lakh for those in the lower and mid-income groups. By increasing the loan amount to Rs. 12 lakh and extending the scheme to MIG, the government hopes to make more homes within the reach of the urban poor. This scheme could improve loan growth for banks and NBFCs focussed on this segment, keeping in mind combined the falling interest rate. A pickup in demand for affordable housing will not only help banks and housing finance companies, but can also support the growth of other allied industries.