The credit-linked subsidy scheme (CLSS) for affordable housing has finally taken off, at least for economically weaker section (EWS) and lower income group (LIG). However, the demand from middle income group (MIG) is lower than expected.
This made the finance minister revise the allocation for CLSS for the current financial year by doubling it to Rs eight billion (Rs 800 crore) for EWS and LIG categories. Further for the next financial year, the allocation has been raised to Rs 10 billion (Rs 1,000 crore). Meanwhile, the allocation for MIG category has been brought down for the current financial to Rs sic billion (Rs 600 crore) from Rs 10 billion (Rs 1,000 crore) planned originally. Further, at Rs nine billion (Rs 900 crore) for the next financial, the allocation is expected to be lower than that for EWS and LIG.
“Marginal utility value under CLSS can be more for buyers from EWS and LIG categories than those availing subsidy under MIG categories,” says Sudhin Choksey, MD Gruh Finance, a subsidiary of Housing Development Financial Corporation (HDFC) that focuses on affordable housing.
The CLSS scheme is available only for first-time home buyers who do not own a house. Those first-time buyers with annual income of up to Rs 600,000 are eligible for maximum subsidy of 6.5 per cent interest subvention on loan up to Rs 600,000. This comes to maximum subsidy of Rs 220,000. They would usually get a home loan of up to Rs 1.8 nillion (Rs 18 lakh). For MIG-I and MIG-II categories, first-time buyers with annual income of respectively Rs 1.2 million (RS 12 lakh) and Rs 1.8 million (Rs 18 lakh) can have subsidy of about Rs 230,000. They would get total home loan of respectively Rs 3.8 million (Rs 38 lakh) and Rs 5.8 million (Rs 58 lakh). The interest subsidy for MIG-I and MIG-II category is four per cent and three per cent, respectively, for loan amount of Rs 900,000 and Rs 1.2 million (Rs 12 lakh). For the rest of the loan amount they have to pay interest at market rate.
“The Corporation on an average has been approving 8,000 loans on a monthly basis to the EWS and LIG segment, with monthly average approvals at approximately Rs 1,300 crore (Rs 13 billion),” said HDFC. It is India’s second largest mortgage lender with a loan book of Rs 3.42 trillion (Rs 3.42 lakh crore) at the end of December 2017.
It further claimed that 39 per cent home loans it approved in the current financial in volume terms and 20 per cent in value terms were toward EWS and LIG. Its average home loan to the EWS and LIG segment stood at Rs 1.02 million (Rs 10.2 lakh) and Rs 1.73 million (Rs 17.3 lakh) respectively.
“Earlier there were supply constraint for the EWS and LIG segment. Then there were a lot of concession given for this segment to developers in the budget last year. And that has helped it take off,” said Sriram Kalyanaraman, MD and CEO at National Housing Bank, the housing finance regulator. Last year's budget provided infrastructure status to affordable housing besides income tax benefits for developers.
As per real estate research firm PropEquity, respectively 15,179 units of EWS and 49,012 units of LIG houses came to market in first 11 months of 2017. The firm is still auditing data for December. This is against 30,196 and 1,106 units of new houses under MIG I and MIG II categories.
Pradhan Mantri Awaas Yojana (PMAY) was launched in June 2015 with an aim to provide affordable housing to urban poor. Under PMAY, it is proposed to build 20 million houses for urban poor including EWS and LIG in urban areas by the year 2022 through a financial assistance of Rs 2 trillion ($31 billion) from central government. Apart from CLSS, this mission has three more components: in-situ Slum Redevelopment with private sector participation using land as resource, affordable housing in partnership with private and public sector and beneficiary led house construction.
CLSS for two middle income groups (MIG) were introduced on 31 December 2017, and so far have not really taken off.
“We expect the MIG scheme to also now take off as it takes about a year for real traction in the market,” says Kalyanaraman explaining how the system has to be in place to ensure that subsidy is going to a right person. Also the feedback from developers have to been taken and challenges resolved. Like based on feedback from the developers from tier-II and tier-III cities, the government increased the carpet area for houses under MIG-I category to up to 120 sq metre (from 90 sq metre) and for MIG-II to 150 sq metre (from 110 sq metre) in November.