Govt Extends Support To Middle-Class Home Buyers

Even though the details of the plan are yet to be revealed, Prime Minister Narendra Modi in his address to the nation on New Year's Eve made housing more accessible to India's middle class.

In his address, the PM announced that now people with an annual income of up to Rs 12 lakh in urban areas would be eligible for a four per cent subsidy in interest for a home loan up to Rs 9 lakh. Those earning Rs 18 lakh annually, on the other hand, will enjoy a three per cent rebate on home loans of up to Rs 12 lakh. The plan also includes the release of the entire interest subsidy amount upfront which would help buyers make the down-payment. According to media reports, the Centre will be spending Rs 1,000 crore for the interest subsidy.

It is worth mentioning here that government schemes providing easy access to funds are largely focussed on the poor. With the announcement of this scheme, India's middle class will also be able to get easy access to funds. For instance, the government provides a 6.5 per cent interest subsidy to those earning up to Rs 6 lakh for housing loans of up to Rs 6 lakh. This is too small an amount to invest in property in major cities. As a result, only 20,000 people have availed of the loans under this scheme so far. With its extended cover, the new scheme will see more people investing in property.

Now, assuming you apply for a home loan worth Rs 40 lakh while your annual income is below Rs 18 lakh. You will be able to enjoy the interest rate rebate on the loan amount of Rs 12 lakh loan. For the remaining amount, you have to pay the normal interest rate at which your bank offers home loans. Even then, the cost of your house would be much less now.

However, there are certain conditions to be met that might act as a deterrent:

• You have to apply for a fresh home loan under the Pradhan Mantri Awas Yojna (PMAY) to avail of the benefits under the scheme.

• The scheme will not be applicable on the home loans availed of earlier. 

• An applicant must not own a house elsewhere. Those who migrate to bigger cities often own houses in smaller ones. Though large in number, this population, which is constantly struggling to buy property in bigger cities, will not be able to avail of the benefits of the new scheme. Some relaxations in this regard will go a long way in improving the overall health of the sector.