Housing loan interest rates dipping in the past few months
- Lower interest rates and stagnant property prices, in combination with the interest subsidy under the Pradhan Mantri Awas Yojana (PMAY), have markedly improved the economics for home buyers, according to bankers
- With interest rates falling about 200 basis points in the last 15 months, EMI (equated monthly installments) for small and medium ticket home loans in some cases have fallen below the rent paid for the same property.
- According to bankers, for a home loan of Rs 25 lakh, when the current interest rate of 8.5-9% is coupled with the subsidy benefit under the PMAY, the real interest rate for a home buyers with an income of Rs 12 to Rs 18 lakh per annum works out to just 4%, after adjusting for tax benefits.
- The PMAY scheme is available for fist time home buyers with family income up to Rs 18lakh and for the property size up to 110 square metres (1,100 sq. ft. carpet area)
What is Pradhan Mantri Awas Yojana(PMAY)?
- It is central governments flagship scheme to provide housing for rural poor in India.
- PMAY plans to provide homes to 18 million households in urban India and nearly 30 million households in rural India.
- PMAY provides interest subsidy on a home loan and direct subsidy for individual house construction or enhancement.
- Pradhan Mantri Awas Yojana is the new version of Prime Minister’s Housing For All by 2022 vision.
- In March 2016, the government has approved the replace the existing Indira Awas Yojana with Pradhan Mantri Awas Yojana-Gramin as housing for All by 2022 mission.
- Under this scheme affordable pucca houses with water facility, toilet facility and 24*7 electricity supply and access will be built
- The scheme will remain functional from 17 June 2016 to 31st March 2022.
The scheme was launched with objective of constructing more than two crore houses across the country within seven year’s time period. The beneficiaries of the scheme would be poor and people living under low income group’s categories. There are three phases of the scheme as follows:
- Pradhan Mantri Awas Yojana Phase 1: This phase covered time period from April 2015 to March 2017 and covered 100 cities.
- Pradhan Mantri Awas Yojana Phase 2: This phase would span from April 2017 to March 2019, covering 200more cities for development.
- Pradhan Mantri Awas Yojana phase 3: This phase would span from April 2019 to March 2022 and will cover the remaining cities.
Beneficiary or targeted group:
The beneficiaries of the scheme include Women, Economically Weaker Section of society (EWS), Scheduled Tribes (ST) and Scheduled Casts (SC). The government is providing subsidy ranging between 1 lakh to 2.30 lakh.
- Beneficiary or the interested group should not own a pucca house.
- Only the applicants belonging to lower income group or economically weaker section are eligible.
- EWS annual income should not exceed to Rs 3 lakh per annum.
- LIG annual income should not exceed to Rs 6 lakh per annum.
Awas Yojana Carpet Area:
- For economically weaker section applicants, it is 30 square meters.
- For lower income group applicants, it its 60 square meters.
How PMAY operates?
The scheme is being carried out in 4 components. These components are discussed below:
- Transforming Slum Areas e Slum Rehabilitation of Slum Dwellers: This component will be carried out with the help of private developers using land as resource.
- Credit Linked Subsidy:
- Under this component, weaker economic section will be given subsidy on home loans taken by urban poor.
- This subsidy will be available for the loans availed for new construction and addition of rooms
- This subsidy will only be available for loan amounts upto 12 lakhs. For loan of amount more than 12 lakh no subsidy will be given
- Affordable housing in partnership: Under this component financial assistance to economically weaker section (EWS) houses being built with different partnership by States/ UT/Cities, will be given.
- Beneficiary led Individual house construction or enhancement: Under this component, assistance to eligible families belonging to economically weaker sections will be given. A total assistance of Rs 1.5 lakh will be given under this component.
The features of Pradhan Mantri Awas Yojana are as following:
- The government would provide an interest subsidy of 6.5%on housing loans availed by the beneficiaries for a period of 15 years from the start of loan.
- The houses under Pradhan Mantri Awas Yojana would be allotted to preferably the female member of the family. Along with this, preference would be given to the female applicants. This scheme is mostly a pro-women scheme.
- While allotting ground floors in any housing scheme under the PMAY, preference would be given to differently-abled and older people.
- The construction of houses under PMAY would be carried out through technology that is eco-friendly.
- The sum of Rs 1.5 lakh would be provided to all eligible urban poor who want to construct their own house in urban areas or wish to make necessary renovations in their existing houses
- Under this scheme, the ICICI will provide housing loans at subsidized rates of 6.5 % annually for the loan amount of Rs. 6 lakh (maximum). This subsidy will be credit linked. This housing loan will be provided along with the partnership with National Housing Bank, which will administer the entire housing project. And the maximum loan tenure to get the subsidy is 15 years.
The government has announced several measures to promote and encourage the low-income households for owning houses in accordance with their financial capacity.
- The steps involve cheaper access to credit (loans)
- Tax incentives for home loans
- Interest rate deductions, and promotion of Real Estate Investment Trusts (REITs)
- The government has allocated a budget of Rs 150 crores for setting up an Integrated Land Information System. This step holds significance in resolving the perennial challenge of land rights faced by millions of low-income and poor people, especially in the rural areas.
What are the challenges in implementation?
The government’s housing scheme is far from reaching its goal due to many impeding factors. The scheme is facing a challenge regarding the speed of execution
- There seems to be a significant gap between the numbers of sanctioned versus constructed houses during 2016.
- In Lok Sabha reply on 11 May 2016, the Ministry of Housing and Urban Poverty Alleviation (MHUPA) has stated that 710 houses have been constructed from the sanctioned number of 6,83,724 by May 2016. This 0.1% completion status by May 2016 reflects a major flaw in implementation approach
- The challenge of the mission is to create a governance climate that would trigger multiple solutions to issues associated with PMAY.
- The technical Group’s report highlighted the problem of housing shortage(lack in number of houses to accommodate the population of an area).
- There is widespread scarcity of landin building new housing units
- Property records – People in ancestral homes and slum dwellers are unlikely to have proper title documents which are required for availing the subsidy
- Moreover land records are governed by the State’s revenue department, while housing is a separate agency
- The existence of distorted rental market is anothercause of concern
- Reports showed that there were over 10 million vacant houses which are un/ under-utilised
- Owners of these vacant houses prefer to leave their house vacant, rather than offer it on rent in the fear of losing their property to tenants.
What should be done?
- Looking at the current trend the government should focus on implementation, mode of clearances, demand-supply push, and use of technology.
- The government should ensure better system and processes for time bound completion of initiative like PMAY (U).
- There is need to focus on proper transparency, frequent monitoring, and better control for the proper implementation of the scheme.
- There is need to clarify the approvals and clearances of housing projects.
- Simplification of taxes to encourage the growth and listing of REIT in India.
- The government need to encourage adoption of technology based materials and green approach for construction of affordable housing for all.
- States need to simplify the process of updating property recordsmaking it easier for citizens to obtain legal documents to their land and property
- Credit should be provided to people to upgradetheir congested houses to tackle the problem of land scarcity
- Transfer of Development Rights (TDR) should be done to incentivize developers to in-situ rehabilitate slums
- Providing security of tenure— even a “no eviction guarantee” to individual households who don’t have legal titles thereby encouraging them to invest money and upgrade their shelter.
- States need to push through rental reformsthat balance the interests of tenants with the protection of property owners’ rights.
In order to achieve target of constructing 20 million affordable houses by 2022, there is an urgent need to move ahead with clear time-bound deliverables and outcomes.