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  • How Pradhan Mantri Awas Yojana Scheme is Reviving and Boosting the Housing Sector in India

    The Pradhan Mantri Awas Yojana scheme was launched with the objective of providing ''Affordable Housing'' through a credit-linked subsidy on home loans for people from the economically weaker sections of society as well as the low-income and middle-income categories. The scheme works with both government and private sector funding.

    The plan is split into two halves - PMAY Urban and PMAY Rural, and each half has its own range of benefits and features which were crafted keeping the target audience in mind. For example, PMAY Rural is focussed specifically on the people residing in rural areas, whereas the urban component is directed towards people living in cities.

    Key Features of Pradhan Mantri Awas Yojana

    Coming up with a housing scheme for a country whose population is more than 1.1 billion is no easy feat. The logistics of such a scheme should be planned in such a way that no section of the society is left out. This is one of the reasons why the architects of the PMAY directed the scheme towards the urban poor of the country, that is, people belonging to the Economically Weaker Sections (EWS), Lower Income Groups (LIG) and Middle Income Groups (MIG).

    This was further split into four components that have been listed below. Needless to mention, these components encompass all the possible scenarios that a prospective homebuyer may find himself/herself in.

    • Insitu Slum Rehabilitation

    This component is meant for those citizens who are living in slums. They can select this component to get a grant of Rs.1 lakh from the government and use it for the construction of an all-weather house.

    • Beneficiary Led Construction

    This component of the mission is meant to provide assistance to those eligible families that belong to EWS and would like to either construct a new house or enhance an existing one. However, the prerequisite to be fulfilled here is that the beneficiary must own land. In this case, the central assistance of Rs. 1.5 lakh will be provided to the recipient for construction or enhancement of the house.

    • Affordable Housing in Partnership

    Under this component, one can avail the central assistance of Rs.1.5 lakh for construction of a new house, provided the beneficiary does not own land/house and cannot afford to build one with the help of a home loan. This financial assistance will be provided to houses that are being built in partnerships with the help of States/Union Territories.

    • Credit Linked Subsidy Scheme

    This scheme is for those citizens who can afford to construct/purchase/enhance a house with the help of home loans. A subsidy will be provided on the interest component of the home loan EMI provided the eligibility criteria are met. The maximum subsidy that can be availed is Rs.2.67 lakh and one can apply for it at all the major banks.

    The following table illustrates the Features of the CLSS scheme:

    Category Required household income Maximum loan amount on which subsidy is calculated Interest Subsidy (%) Maximum subsidy in Rupees Maximum Carpet Area (square metres)
    EWS and LIG Up to Rs. 50,000 per month Rs. 6,00,000 6.50% Rs. 2,67,000 60
    MIG 1 Rs. 50,001 - Rs. 1,00,000 per month Rs. 9,00,000 4.00% Rs. 2,35,000 120
    MIG 2 Rs. 1,00,001 - Rs. 1,50,000 per month Rs. 12,00,000 3.00% Rs. 2,30,000 150

    As mentioned earlier, thousands of citizens from the aforementioned categories have already applied for the benefits under the respective components of the Pradhan Mantri Awas Yojana. The home loan interest rates have also been reduced by the leading financial institutions in the country. The CLSS has particularly proven to be a big hit among the population as the number of loan applications with the leading financial institutions in the country have surged dramatically in the past year.

    Sources from the government have stated that by December 2018, they are expected to achieve the milestone of constructing 10 million houses under the PMAY. To meet such a massive demand, especially in the affordable housing sector, sizeable investments are needed. In fact, this specific segment has been on the radar of private equity firms for some time now, with both domestic and international investors looking at it. This has been explored in the next section.

    Affordable Housing Segment and the Rise in Investments

    The second half of 2017 witnessed a dramatic surge in investments in the affordable housing space. This was induced by the increase in demand for houses along with the government’s push for the housing initiative. Private equity real estate firms have invested heavily in the affordable housing segment and some of the takeaways have been highlighted below.

    • A wide majority of the housing projects launched in 2017 were in the affordable and mid-range price categories. In fact, the affordable sector by itself accounted for more than 40% of the total residential projects.
    • In the same year, real estate based private equities made 67 investments in the country, the value of which was $6.1 billion. Furthermore, more than half of this was directed towards affordable housing projects.
    • Considering that the Union Budget 2018 is likely to give the affordable housing sector and the PMAY a significant push, the number of investments by the private equities is expected to increase this year.

    The real estate market in India has been in a slump owing to demonetisation, the implementation of Real Estate (Regulation and Development) Act, 2016 and Goods & Services Tax (GST). As a result, these investments have played a crucial role in boosting the sector.

    The Formation of Real Estate Regulatory Authority (RERA)

    One of the major provisions of the Real Estate (Regulation and Development) Act, 2016, was to protect the interests of homebuyers and ensure that there is transparency between the developers & builders, and buyers. It also serves as a platform for quick grievance redressal in case the property in question hasn’t been delivered on time or if there is any other problem.

    RERA was formed in all the states and Union Territories in the country, thus ensuring that there exists an authoritative body whose sole purpose is to deal with matters related to real estate. As per the Act, all builders are required to register their present and ongoing projects on the official RERA website and publish all the relevant details. Additionally, real estate agents are also required to register on the RERA portal.

    Presently, all the states have established RERA. Moreover, its timing couldn’t have been any better, given that residential projects in the affordable housing segment are on the rise owing to the Pradhan Mantri Awas Yojana.

    The prospective homebuyers who now are looking to take advantage of this housing scheme can proceed confidently, knowing that there exists RERA to protect their interests. In addition to this, the implementation of this Act also brought in much-needed control and organisation in the real estate sector.

    These initiatives are still in its early stages. As they accelerate in the months to come, the real estate market is likely to see an improvement. As of now, it is fair to say that the market is on an upward trajectory.

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