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Government Gives Major Boost To Housing And Home Loans In India

There has been a steady offtake in the affordable housing segment due to government’s various incentives and efforts to stimulate the industry. Our honourable Prime Minister Narendra Modi has given a kick-start to the real estate sector with the Pradhan Mantri Awas Yojana (PMAY) scheme.

It is a landmark decision as the home loan interest rates are low in this scheme. As the latent demand for affordable housing always existed but with regulatory and government support and increasing urbanization, more and more developers are finding the segment lucrative.

It is encouraging buyers to invest in property now but the benefit of this scheme comes at one condition, i.e. if you are already an owner of property in India then you won’t be eligible for a home loan under the PMAY scheme. However, the caveat that those already owning a property would not be eligible to a lower interest, if it is done away with then people who want to buy a second home will also be able to invest in properties.

There is a proposal that is issued by the Cabinet, it is proposed that those with annual income up to Rs. 12 lakhs can purchase a home up to 1,200 sq. ft., earlier it was 900 sq. ft. People with annual income up to Rs. 18 lakhs can buy homes up to 1,500 sq. ft., earlier it was 1,100 sq. ft.

Fresh buyers are also getting confidence into the realty sector with government policies like the Real Estate Regulatory Authority (RERA). They are finally making purchase decisions for homes as per their budgets. The availability of easy finance is also increasing the demand for affordable housing. 

As per an India Ratings and Research report, affordable housing finance is set to be a Rs 6 trillion market by 2022. It has also predicted a whopping demand for 25 million homes in the medium-income group (MIG) and lower-income group (LIG) categories over the next five years. 

Owing to the last few monetary policies, home loan rates have stabilised and we do not foresee any further reduction therefore it is a good time for the buyers to invest in property. All these efforts have started to show visible impact on the ground. Benefits from the recent Credit-Linked Subsidy Scheme (CLSS) under PMAY and lower interest rates have further given a boost to the consumer’s loan eligibility.

As the real estate industry has an infrastructure status, the extended CLSS to include MIG 1 & 2 and most recent announcement on RERA, are some commendable efforts to meet the demand of affordable housing. These customer friendly approach and efforts have definitely given a strong boost to home loan.

Generally, the first-time homebuyers purchase their property through home loans. As a result, specifically the Tier-2 and Tier-3 markets in India are seeing a surge in home loan demand. As the smart cities are becoming catalysts in improving the quality of life, these cities are giving a major boost to the real estate in urban locations. Considering the upcoming infrastructure projects and other growth drivers, several cities under the Smart Cities initiative hold a distinct advantage and can be safe bets for ‘smart’ real estate investments.

But to boost the affordable housing finance it needs to be customer friendly. Financial institutions need to focus on making the entire experience of home purchase seamless and less time consuming. Companies need to think how we can address their financial needs across their whole financial life cycle through customised products.

Single-window clearances, external commercial borrowings (ECB) are some steps towards increasing development in the affordable segment and ensuring timely delivery is converting demand for affordable homes into a commercially viable opportunity. So finally, we can say that the sun is finally rising on the affordable housing segment.

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