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The government of India, on November 16, 2017, approved an increase in the carpet area of houses for the two middle-income group (MIG) categories, under the Pradhan Mantri Awas Yojana – Urban. Under the MIG-I category, the carpet area of the houses has been increased from 90 sq metres to 120 sq metres, while under the MIG-II segment, it has been increased from 110 sq metres to 150 sq metres.
While industry stakeholders have welcomed the new norms, saying that it could revitalise the real estate market, a closer look at prices in the top ten cities and many tier-2 cities, suggests that the move would hardly make an impact.
Home buyers unimpressed with carpet area increase under PMAY
Amit Nagarjuna is buying a 950-sq ft (88.25 sq metre) apartment in Malad, in Mumbai at a cost of Rs two crores, with a bank loan of Rs 1.4 crores. Will he now opt for 340 sq ft additional space, to avail the benefits of the new policy incentive? “Do you know the cost of property in Mumbai? Can you imagine my loan amount for this property?” he laughs, dismissing the question.
Similarly, Shweta Mehrotra is buying a 1,200-sq ft (111.4 sq metre) apartment at a cost of Rs 80 lakhs in the affordable region of Noida. Her bank loan is Rs 60 lakhs. Would she be tempted to buy a 1,600-sq ft (148.6 sq metre) apartment at the cost of Rs 1.1 crores to benefit from the new announcement?
“I fail to understand why everyone is excited about a policy announcement that hardly touches the majority of home buyers. I do not think that in the cities today, anyone who falls in the income of up to Rs 12 lakhs or Rs 18 lakhs, would be in a position to think of buying a bigger house and take extra debt burden, just to avail of a few hundred or thousand rupees lesser EMI,” says Shweta.
A calculation by Track2Realty, finds that buyers who earn less than Rs 12 lakhs per annum, are anyway not in a position to buy houses of more than 1,000 sq ft (92.2 sq metres). Similarly, a majority of the buyers who earn less than Rs 18 lakhs yearly, prefer to buy houses of up to 1,200 sq ft (111.4 sq metres) or at the most 1,400 sq ft (130 sq metres).
‘Housing for All’ to receive a boost, say industry stakeholders
Industry stakeholders, nevertheless, are upbeat. Jaxay Shah, president, CREDAI-National, opines that the ‘Housing for All by 2022’ initiative will receive a boost, with the increase in unit size of MIG houses under the Credit-Linked Subsidy Scheme (CLSS). The average middle-class buyer in smaller towns and cities, will now be able to afford bigger and better quality homes than before, he says. “On the supply side, private developers now have more incentive, to increase scale and contribute to bringing about a new India,” says Shah.
Gagan Banga, VC and MD, Indiabulls Housing Finance, echoes a similar sentiment, when he says that the cabinet’s decision is a massive positive for the housing sector. The home buyer will now have a larger pool of prospective houses, to choose from and there will be more incentive for fence-sitters to make a purchase. “Builders will not only enjoy the general uptick in the market that is ahead of us, but can also accelerate the sale of housing units, as they were earlier missing out on a sizeable portion of the MIG audience,” says Banga.
Benefits that may actually help applicants under the PMAY scheme
It is a globally accepted norm that any house that costs more than five years of gross income, with the second simultaneous condition of not commanding more than 50 per cent of take-home salary, is not affordable. Hence, a house that costs Rs 80 lakhs (considering 1,000 sq ft or 92.2 sq metres as the lowest base) is a huge liability, for a buyer earning Rs 12 lakhs per annum. Even if one considers tier-2 cities, property prices in most of these cities clearly indicate that the policy will not have any tangible effect. Moreover, property prices in many of the tier-2 cities, like Patna, Lucknow, Jamshedpur, Bhubaneswar and others, have already peaked.
Home buyers, hence, are of the opinion that instead of increasing the carpet area, which will only benefit the financially well-to-do buyers, the government should have increased the income level or the subsidy level.
Why increasing the area under the PMAY scheme will not work
- Property prices are already unaffordable for buyers earning below Rs 12-18 lakhs annually.
- Instead of offering larger carpet size, the policy should have increased the income level or subsidy level, to reach out to the masses.
- The tangible gain with the scheme is only a couple of thousand rupees in the EMI, as compared to a significant increase in the price of a larger house.
(The writer is CEO, Track2Realty)