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Affordable Home Loans get Cheaper
Loans for affordable homes are set to get cheaper with finance minister Pranab Mukherjee on Monday extending the limit of priority home loans in his budget speech. The move is expected to spur demand for low-and mid-cost housing in the country. “To further stimulate growth in the housing sector, I am liberalising the existing scheme of interest subvention of 1% on housing loans by extending it to housing loan up to Rs 15 lakh from the present limit of Rs 10 lakh,” Mukherjee said in his budget speech. He also raised, by Rs 5 lakh, the value of a house to be eligible for home loan under this scheme.
“On account of increase in prices of residential properties in urban areas, I propose to enhance the existing housing loan limit from Rs 20 lakh to Rs 25 lakh for dwelling units under priority sector lending,” the minister said in his speech. Real estate developers and analysts feel the move could spur demand in Tier-I and Tier-II cities but will not have a major impact in metropolitan areas as the Rs 25 lakh upper limit on the price of a house is too less for cities such as Delhi, Mumbai, Bangalore or Hyderabad.
“This is good news but will do nothing to ease the pain in metropolitan cities due to high real estate prices here,” said Anuj Puri, country head, Jones Lang LaSalle India, real estate consultancy. The move is expected to have a positive impact in smaller towns and suburbs of major metros, said Kaustuv Ray, executive director, Cushman & Wakefield. “It may possibly prompt some of the larger developers and funds to enter these segments.”
Developers, who have been launching several sub-Rs 25 lakh housing projects post slowdown, however, gave a thumbs up to the announcement. “We welcome the measures …it will certainly aid in boosting the demand and development of affordable housing in the coming months,” said Sanjay Chandra, managing director, Unitech. The announcement reflects the government’s thrust on low- and mid-income houses, said Rohtas Goel, president, developer association Naredco.
The finance minister also proposed an increase in provisions under the Rural Housing Fund to Rs 3,000 crore from the existing Rs 2,000 crore. Besides, a Mortgage Risk Guarantee Fund to guarantee housing loans taken by economically weaker sections and lower-income groups has also been created.
However, restriction of Cenvat (central VAT) credit to 40% is being seen to have a negative impact on the realty sector. “The restriction of cenvat credit to 40% will negatively impact the real estate industry and EPC contractors amongst others,” said Prashant Deshpande, leader, indirect tax, Deloitte in India.

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