The 6.5 per cent interest subsidy scheme aims to provide the urban poor with the financial muscle to buy affordable houses
The cabinet committee, under the credit-linked interest subsidy component, said that an interest subsidy of 6.5 percent for a tenure of 15 years will be given to Economically Weaker Sections (EWS) and Low Income Groups (LIG), thus giving them a benefit of about Rs 2.3 lakhs each. “This move augurs well for people who fall under the EWS category and also with an annual earning income of upto Rs 3 lakhs. In addition to realigning the income criteria, the minimum unit size for EWS housing has also been in creased to 30 sq mts from the previous 25-27 sq mts,“ says Rajesh Prajapati managing director, Prajapati Constructions Ltd.
This subsidised interest on home loan is believed to be of great help because it will make a big difference in the amount of EMI to be paid every month and in turn, will also reduce their burden of the total cost, which an individual has to pay.
“It is especially effective for families with an annual income of less than Rs 6 lakhs, as an earlier EMI of Rs 6632 (on a loan of Rs 6 lakhs and an interest rate of 10.5 per cent) will reduce to Rs 4438.This effective rate of interest (four per cent) is closer to international interest rate standards,“ says, Amit Haware, director, Haware Engineers & Builders Pvt. Ltd.
The government has already previously increased the amount of home loan that can be availed by people in the metro cities, thereby acknowledging the fact that houses in urban areas are more expensive, and also that greater financial support is therefore required.
By increasing the income limits for the EWS and LIG categories, the government has also ensured that a larger portion of the urban poor will be covered under the scheme. According to Gopal Sharma, GM (marketing and sales), Gundecha Builders, the government has to implement this scheme of `Housing for all 2022' very seriously.
“Till date, at different times, various schemes are being announced but nothing much has been achieved so far. The `Housing for All by 2022' scheme requires a lot of funds, which the government alone cannot manage on its own and hence, the Public Private Partnership (PPP) model will be an effective proposition. Also, considering today's high cost of properties, the upper limit of the loan should be increased because in many cities, especially in metros, it is impossible to buy a house in Rs 5-6 lakhs,“ says Sharma.
“The next important step is to provide the working mechanism for this scheme, with the guidelines to be formulated by the ministry and the RBI, to allow for its execution by the banking sector, which leads to the first question mark in the government's `Housing For All by 2022' scheme,“ says Anuj Puri, chairman and country head, JLL India.
A lacuna of this scheme is that it does not offer tangible solutions for the ur ban poor who do not reside in a slum but wish to own a house in a metro city.
“Another challenge is to provide some relief to the middle income group (people earning Rs 50,000 to Rs 2,00,000 per month) who are presently the biggest chunk of buyers but perhaps a segment completely ignored in this policy,“ adds Prajapati.
Meanwhile, there is the issue of achieving a solution whereby cheap, newly-constructed houses are available to such a class of the urban poor and migrant segment, who do not stay in slums which will be covered under the slum redevelopment part of the `Housing for All' scheme. This financial solution does not address a more critical question that of land availability, and that too at a price where a house can be built and made available at an affordable cost of around Rs 6 lakhs to Rs 7.5 lakhs.
Puri concludes by adding that the kind of housing supply that the government is targeting seems out of the question if appropriate land is not made available.
To create housing for these urban poor, the only solution lies in the unlocking of land in the urban areas.
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