Over the course of 10 days, two major announcement s have been made by The Government and the Reserve Bank of India to boost affordable housing sector.
In his Budget 2014-15 speech Finance Minister Arun Jaitley announced major initiatives for the affordable housing segment and has earmarked Rs 4000 crore up from Rs 2000 crore last year to the National Housing Bank for giving credit to housing finance companies for lending requirements.
This was followed by an announcement from the RBI on Tuesday that allowed banks to raise long term soft funds from the market to finance soft lending for home buyers for home buyers for up to Rs 50 lakh for property values up to Rs 65 lakh in the six metropolitan centres: Delhi, Mumbai, Kolkata, Chennai, Bangalore and Hydreabad, For other areas, it covers loans of Rs 40 lakh for houses with values up to Rs 50 lakh.
Earlier loans were given by banks to individuals — up to Rs 25 lakh in metros and Rs 15 lakh in non-metros — for purchase/construction of a dwelling unit, per family, are considered as affordable housing loans. These loans fall under the priority sector lending category for banks.
Affordable housing is something that can be owned by lower income group and middle class people.
“You are right. This needs to be defined well. Though there are definition under income tax act u/s 35 AD but it may not be universal. Affordable housing means different to different sections of buyers. It is actually a misnomer. Government norms too are very confusing,” CREDAI Chairman lalit Kumar Jain replied to The Pioneer when asked about the definition of affordable houses.
Giving an example Jain said “For instance, the houses being built in Navi Mumbai for sweeper-house maid category are called EWS. These flats cost Rs 16 lakhs. The income eligibility limit is set at Rs 16,000 maximum per month. How can you expect any one with such income pay up EMIs of at least Rs 12,000 and still survive. So, the definition of affordability needs to be redefined.”
“Its a good move. In fact, long awaited one, It will have a positive impact as far as rekindling the buyer sentiment is concerned. But, we will have miles to go before actually see the impact. A very good beginning, nonetheless.” Jain added.
Similarly Experts said that “This decision by the RBI will provide ample liquidity to the banks for providing home loans to the newly defined affordable home segment. Most of the affordable segment customers are also first time home buyers and therefore fund sourcing from home loan becomes very important to them to manage the deficit.”
Adding to that KPMG Partner and Head of Real Estate and Construction, Neeraj Bansal said “The move is expected to reduce Equated Monthly Installment (EMI) of a home loan borrower by 8-10 per cent, which coupled with recent income tax incentives have the potential to boost annual savings of an individual to the tune of INR1 lakh.”
The shortage of houses in urban India is estimated at close to 19 million as per National Housing Bank data. Another estimate says that it takes more than five year’s annual income to pay for a house in the non-metro cities. Thus, the available housing stock is priced mostly out of reach for even middle income housing groups.
Manoj Gaur, MD, Gaursons India ltd said “If RBI soon drops the basic points by 50 then buyer definitely will have to pay the lesser EMIs. Thereby, more tax exemption on home loan, easily available home loans, FDI and REIT are the win-win situation for everybody.”
On the other hand some experts feel that “ It is hard to imagine how a middle class person earning even Rs 50 to 60,000 per month will be able to purchase homes in the range of Rs 60 lakhs, leave alone lower income group. In simple terms, to get the home loan of Rs 50 lakhs, you need to have a monthly take home salary of approximately Rs 1 lakh. It is anybody’s guess as to how many people draw salary in this range.”