Housing For All: RBI, Center Close Ranks

The Union government and the Reserve Bank of India are announcing measures not only to increase the scope of subsidies for a larger customer base, but also to reduce interest rate on home loans, so that affordability factor improves for home buyers, especially the middle and lower-income group.

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The government’s decision to increase cap on carpet area criteria to qualify for interest subsidies under Prime Minister Awas Yojna (PMAY) will increase sale of largersized apartments, as more buyers can now avail the subsidies.

In line with the revised norms, MIG-I category home buyers with household income between Rs 6 lakh and Rs 12 lakh are now eligible for subsidy for housing units of up to 160 sq metre in carpet area, up from the earlier size of 120 sq meter.

Similarly, MIG-II category homebuyers with household income between Rs 12 lakh and Rs 18 lakh are eligible for subsidy for housing units of up to 200 sq metre in carpet area, up from the earlier size of 150 sq metre.

Earlier this week, the RBI also revised the definition of Priority Sector Lending (PSL) by increasing its ambit to cover more buyers. Now, loans taken to buy a house costing up to Rs 45 lakh in metropolitan cities, and up to Rs 30 lakh in other centres, will come under priority sector lending. This will increase the number of units which qualify for priority sector loans.

Apart from this, the RBI revised housing loan limits under PSL from the existing Rs 28 lakh to Rs 35 lakh in metropolitan centers with population of 10 lakhs and above, and from existing Rs 20 lakh to Rs 25 lakh in other centres, in its bimonthly monetary policy statement, provided the overall cost of the units in the metropolitan center and at other centers do not exceed Rs 45 lakh and Rs 30 lakh, respectively.

An analysis by a leading property portal, Magicbricks, shows that Greater Noida is the biggest beneficiary in the MIG category after the revision in the PSL norms, as the number of available units for sale in the region have gone up from 31% to 55% of the total available stock. Ghaziabad, where the stocks increased to 40% from 21%, and Noida, from 16% to 29%, were second and third on the list.

Banks are supposed to lend 40% of their total outstanding loan funds

to priority sectors, where default rates are high at around 8%. If the home loan segment above Rs 10 lakh is also included in the priority sector category, where default rates are very low, at around 2%, many banks would like to meet the criteria of PSL by giving home loans in the ticket size between Rs 10 lakh and Rs 35 lakh.

As the RBI increased the cap on the cost of houses to Rs 45 lakh, up from Rs 35 lakh, in metro cities to qualify for PSL, many units will now be covered under this.

Therefore, the size of this segment will be large enough for big banks to focus on this category to meet their PSL criteria.

This will increase competition and bankers feel that interest rates in this category will fall.

An analysis by Magicbricks on data for million plus listed properties for sale and resale on its platform shows that as a direct consequence of RBI’s revision of the overall cost of the dwelling unit in urban areas, a significant portion of homebuyers in both Lower-income Group (LIG) and Middle-income Group (MIG) in the Delhi NCR cities of Greater Noida, Ghaziabad, and Noida, will be benefited.

Anuj Puri, chairman of Anarock Property Consultants, said the changes made by the government will majorly push home sales in Tier II and Tier III cities where land cost, and capital values of properties thereby, are low and larger apartments are within the reach of such buyers. The timing of this increase in carpet area eligibility norms is perfect, as the RBI recently decided to revise the housing loan limits for Priority Sector Lending (PSL).

The central bank and the Union housing ministry are evidently working more cohesively than ever before, and it would not be an exaggeration to say that the government seems intent on achieving its ambitious mission of “Housing for all by 2022”, Puri said.

Ravindra Sudhalkar, ED and CEO of Reliance Home Finance, said the raise in square footage for eligibility for the Credit-linked Subsidy Scheme (CLSS) will most certainly help in boosting growth and result in overall expansion of the market. This decision, coupled with the RBI’s monetary policy which has increased the PSL limit of banks will keep the sector in focus and, also, help in keeping effective interest rates lower for the affordable-housing segment.

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