Experts feel new housing scheme does not have much to offer

Hyderabad: 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 Rs 9 lakh taken in 2017 will receive interest subvention of four per cent.  Loans of up to Rs 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 Rs 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 Rs 6 lakh home loan under the previous scheme, the government would have paid 6.5 per cent interest on his behalf —  i.e. Rs 39,000 in absolute  numbers.

If the same person had taken a loan of Rs 9 lakh under the scheme announced by Mr Modi, the government would pay four per cent interest on his behalf — i.e. Rs 36,000. Similarly, if he had taken a loan of Rs 12 lakh, he would get three per cent interest sop, which again amounts to Rs 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 Rs 6 lakh. From Saturday’s announcement, we don’t know how the new interest rate subvention would  be applied. For a loan of Rs 9 lakh, would the government give a 6.5 per cent subvention till Rs 6 lakh and give a four per cent subvention on the remaining Rs 3 lakh? Or would the government apply four per cent subvention on the entire home loan amount of Rs 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.

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