Prime minister Narendra Modi, on the eve of new year, had announced an interest rate subsidy scheme on home loans. It is expected that this move, will provide a huge boost to the realty sector. Under the scheme, the interest subsidy of up to 4% would be allowed for loans up to Rs 9 lakhs an up to 3% for loans up to Rs 12 lakhs.
With home loan rates hovering near the 8.5% level and falling, it means that a customer purchasing an apartment for Rs 10 lakhs, can avail of a loan of Rs 9 lakhs and pay less than Rs 5,000 a month as EMI. Similarly, a customer who buys an apartment for Rs 13.20 lakhs with a home loan of Rs 12 lakhs, would pay approximately Rs 8,000 a month as EMI, making the purchase hugely affordable.
“For potential home buyers having a combined household income of up to Rs 3 lakhs a year, this subvention scheme is a blessing, as it allows them to save substantial money. This money can be used for their children’s education, healthcare and other important necessities.
Additionally, this is the sector where there is a massive housing shortage of 19 million units in urban regions. Hence, the scheme should serve as a massive boost to the affordable housing sector and is a highly customer-centric move by the government,” says Rohit Poddar, MD, Poddar Housing and Development Ltd.
Who will benefit from the interest rate subsidies?
The lower interest rates are likely to prove beneficial to the low-income group (LIG) and middle-income group (MIG) buyers. Experts point out that the interest subsidy, will be allowed up to the loan limit of Rs 12 lakhs and above this limit, you can avail the non-subsidised loan. It means, if you are looking for a home loan of Rs 20 lakhs, then, you will be eligible for a subsidy benefit of up to Rs 12 lakhs at 3%, whereas the remaining loan amount of Rs 8 lakhs would be non-subsidised.
“There has been a general lowering of home loan interest rates, as announced by various banks recently, as a direct consequence of increased cash reserves. With the decline in interest rates, the demand for housing is expected to receive a boost. This should improve the confidence of the middle-class buyers who earn Rs 8-15 lakhs per annum. In anticipation of improved demand, developers are upbeat about creating and selling these mid-range products,” adds Arvind Nandan, south Asia director, valuation and advisory, at Colliers International India.
The subsidy benefit would be credited upfront. Therefore, home buyers will find it easier to repay the loan, with lower EMI burden. Under the existing credit-linked subsidy scheme, the subsidy is calculated based on a 15-year tenure. This norm is expected to continue for the new subsidy scheme, as well.
Who can apply for the subsidy benefit?
The subsidy benefit will be available only to first-time home buyers, who do not possess a home anywhere else in the country. Earlier, the subsidy was available for loans up to Rs 6 lakhs but now, it has been increased to Rs 9 lakhs and Rs 12 lakhs. While the subsidy scheme has been welcomed, people are also hoping that the government will also increase the size limit (carpet area) of the property, to get the benefit under this scheme.