PMAY Subsidy – a Mixed Bag for the Economy; Future of Realty Sector is in Affordable Housing; says Venkaiah Naidu

Further to infrastructure status and several props, no more excuses – tells Minister to developers. Discussions soon with real estate bodies on promoting affordable housing

NEW DELHI: Minister of Housing & Urban Poverty Alleviation Shri M.Venkaiah Naidu today urged real estate developers to take up affordable housing projects in a big way while stressing that therein lies the future of the real estate sector. Elaborating on his statement, the Minister said that “ The Government’s focus on ensuring Housing for All including the Middle Income Groups offered immense opportunities both at the bottom and the middle of the pyramid which needs to be seized by the developers who have seen ups and downs in recent year”. He spoke at a Conference on “Real Estate Sector-Post Remonetisation and RERA” organized by PHD Chambers here today.

Shri Venkaiah Naidu further said that the Government has paid more attention to the real sector than any other sector by announcing more than 20 supporting measures to revive real estate sector over the last two years including announcing the long awaited infrastructure status for affordable housing besides several tax concessions and exemptions. He further said that under Prime Minister’s Awas Yojana(Urban), people belonging to Economically Weaker Sections, Low Income Groups and Middle Income Groups with incomes up to Rs.18 lakh per year have been made eligible for central assistance up to Rs.2.35 lakh per each beneficiary. “Low cost long term financing under infrastructure status, tax concessions and central assistance under PMAY and the scale of housing needs of these sections make affordable housing the best investment opportunity and developers are left with no further excuses for not seizing this opportunity” Shri Naidu stressed.

Shri Naidu said that various initiatives of the Government including the Real Estate (Regulation and Development) Act, 2016, the Benami Properties Act and note withdrawal have enabled a new real estate eco-system based on 4 ‘Cs’ viz., Character, Credibility, Confidence and Cash that would help revive the sector. He said that while the Real Estate Act removes the taint restoring the character of the sector leading to credibility and enhanced confidence of buyers, central assistance, reduced interest rates and tax concessions keep more cash in the hands of buyers.

Stating that the Ministry of HUPA has so far approved construction of over 16 lakh affordable houses for urban poor with an investment of about Rs.90,000 cr and central assistance of about Rs.25,000 cr, Shri Naidu expressed concern over private developers not taking up any projects so far. He urged them to change their mindsets and outlook and take up affordable housing projects given the business logic that goes with it in the changing context.

Shri Naidu said that his Ministry would soon convene a Round Table with real estate bodies and representatives of banks and Housing Financing Companies and others concerned to deliberate on the road ahead for promoting affordable housing so that the target of ensuring Housing for All by 2022 would be met.

On the effects of note withdrawal, the Minister noted that it was only a temporary interlude and the process of remonetisation is almost completed. Shri Naidu noted that “For various reasons, real estate sector over the years has come to be seen as the villain in the theatre of corruption and note withdrawal was expected to address flow of unaccounted for money in to the sector by about 20% to 30% which in turn would bring down prices substantially”.

Prime Minister Narendra Modi, on 31 December 2016, announced two new subsidy schemes to cheer up the real estate sector and achieve housing for all by 2022. But it’s only recently that the details of the two schemes under the Prime Minister Awas Yojana (PMAY) were revealed. Under the new schemes, if your annual income is up to Rs18 lakh, your first house would cost about Rs2.4 lakh less. As of now, the subsidy is available to only those earning up to Rs6 lakh per annum.

First time home buyers will get the subsidy at different rates depending upon their income bracket. People who earn less than Rs6 lakh per annum, will get a 6.5 percentage point subsidy on a Rs6 lakh principal component, irrespective of their loan amount. For instance, if you borrow money at a 9% interest rate, you’ll have to pay only 2.5% interest on Rs6 lakh and 9% on the balance. The subsidy for those earning up to Rs12 lakh per annum will be 4 percentage points on Rs9 lakh principal component, and 3 percentage points for those earning up to Rs18 lakh annually on Rs12 lakh principal component.

Why is it good

On a 20-year term, at 9% interest rate – Assuming that the interest rate is 9%, the net benefit across all three categories over a 20-year period would be Rs2.4 lakh approximately. For the buyer, the monthly instalment will reduce by around Rs2,200. This will certainly bring cheers to the average borrower who will now have to pay less on both principal and interest on their home loans.

What it may not be good

While housing for all is a noble idea for a welfare state, someone has to pay for the subsidy doled out by the government. Even if it’s in the form of a state-owned banking system, the money has to be recovered. And the same, it can be safely assumed, will be charged to the taxpayer. Now the question is why should a taxpayer pay for the home ownership subsidy?

There is a fair bit of apprehension in the markets. The added expense for the government, is of course, a major concern. For instance, during the first phase of the same PMAY scheme, Rs310 crore was extended in subsidies for 18,000 first time home buyers from the lower income group. This amount was compensated by taxpayers. The amount will increase exponentially once the thousands of new first-time buyers are added to the scheme.

Impact on home insurance premium

These are early days of the scheme and prima-facie there’s unlikely to be a change in the home insurance premium in the immediate future. With home loan EMIs being more affordable, consumers may just buy property insurance which is still a largely underdeveloped sector in the Indian insurance market.

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