2nd innings for affordable housing subsidy

News Posted - 2010-03-02

Interest subvention on housing loans extended till 2011.

To give a boost to affordable housing, the interest subvention (subsidy) of 1 per cent on loans for purchase of houses costing less than Rs 20 lakh has been extended till 2011.

Last year, the finance minister had given 1 per cent subsidy on purchase of such houses with the loan amount capped at Rs 10 lakh. The subsidy was to expire at the end of the current financial year. The 1 per cent subsidy introduced last year was computed for the first 12 months on the disbursed amount, and adjusted upfront in the principal outstanding, irrespective of whether the loan was taken on fixed or floating rate basis.

However, the government has not been able to disburse the Rs 1,000 crore that was earmarked for the interest subvention scheme for low-cost housing. Secretary (Financial Services) R Gopalan said that around Rs 300-400 crore would be disbursed in the current year and they expect to provide Rs 700 crore in 2010-11. “The scheme was launched late last year. It is now picking up,” he said.

Experts are, however, divided on whether the extension of the scheme will cover existing homeowners or is applicable only to fresh applicants. If the sop has been extended for the second year, borrowers will be able to save about Rs 20,000. Pranay Vakil, Chairman, Knight Frank, said: “There will be a saving of Rs 800 per month for the consumer.”

However, Avinash Narvekar, Partner, Real Estate Practice, Ernst & Young, said that the scheme was applicable only to new borrowers and not existing loans.

With most real estate companies coming out with affordable housing projects, the move should help improve demand for such housing. However, considering that the sop is available for houses costing less than Rs 20 lakh and the loan amount is available up to a maximum of Rs 10 lakh, borrowers in major cities will not be able to benefit from this. “The interest subvention will only help people in the distant suburbs of metros and smaller cities where the ticket size of property is lower,” said Aashiesh Agarwaal of Edelweiss Capital.

Source: Business Standard 27/2/10