In a new initiative to stoke demand for home buying, the central government has enhanced the carpet area for two categories of middle income group (MIG) housing for eligibility for subsidised home loan interest rates. For those earning between `6 lakh and `12 lakh annually, homes of 120 sq metres will now be eligible for interest subsidy of 4 per cent. Earlier, the cap to avail the subsidy was 90 sq metres. For the higher category of those earning between `12 lakh and `18 lakh a year, homes of 150 instead of 120 sq metres will now qualify for an interest subsidy of 3 per cent.
The 30 per cent increase in floor area is expected to now cover almost 90 per cent of the middle class market that buys mid-sized flats in the 800-to-1,600 square feet range. Those who fall in these categories will have to pay just 5-6 per cent interest rate on loans. The catch is the benefit is only for loans up to `9 lakh for the lower MIG category and `12 lakh for the higher category. Beyond that, buyers will have to pay normal interest rates.
The aim is to move a sluggish real estate market. With more projects and builders falling into the Pradhan Mantri Awas Yojana (PMAY - Prime Minister Housing Scheme), the huge pile-up of unsold housing units will begin to disappear. Or so the government and builders hope.
Home buyers are shying away because of two concerns. One, they are not sure if their investments are safe in the hands of private developers. Dozens of builders – from Sanjay Chandra of Unitech to Mumbai’s Pujit Aggarwal of Orbit Construction – are either in jail or facing criminal prosecution for cheating buyers. Hundreds of others have mismanaged funds and have gone bust. Second, residential real estate, earlier seen a decade ago as a sure shot investment that gave galloping returns, is today showing negligible appreciation. This sector has thus eroded as an asset class for investors.
To address the situation, besides tax breaks and sops, the government must enter the market as a competitive developer offering both ‘affordable’ prices and safety for home buyers’ money. Every state has housing development authorities like the Delhi Development Authority and the Maharashtra Housing & Area Development Authority. These bodies have access to land and can execute large projects quickly. However, over the years, these bodies have been hobbled by political machinations. Today, they account for less than 10 per cent of the residential supply in the country.