Credit Linked Subsidy Scheme: An Attempt to Revive the Realty Sector
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credit linked subsidy scheme
25 March 2019 - 14:00, by , in NRI, No comments

Pradhan Mantri Awas Yojna- The credit linked subsidy scheme was launched by Ministry of Housing and Urban Poverty Alleviation to fulfil the central government’s promise of ‘Housing for All by 2022’. Everyone deserves a roof over their head however in the Indian scenario the realty prices are such that only the upper class can afford to buy a home. The credit linked subsidy scheme is a great initiative to help the normal salaried class and lower class to fend for themselves. The government has taken cognizance of this fact and has come to the aid of the common man and his dream of buying a house. It is working towards affordable housing for all by 2022 and has instituted this scheme to ensure that those looking for affordable houses get affordable loans as well.

There is a big need for properties which fall under the price range of INR 50 lakhs. However the supply for this category does not match the demand at all. The developers are mostly interested in more expensive properties as they are more lucrative and generate higher profits. Schemes like these act as a motivator for both the buyer as well as the developer in today’s realty market.

The fundamental mission of the credit linked subsidy scheme is to expand institutional credit flow to the housing needs of urban poor. Interest subsidy will be credited upfront to the loan account of beneficiaries through Primary Lending Institutions resulting in reduced effective housing loan and Equated Monthly Instalment (EMI). The Net Present Value (NPV) of the interest subsidy will be calculated at a discount rate of 9 %.

The Economically Weaker Sections (EWS) and Low Income Group (LIG) seeking loans from banks, housing finance companies and other such financial institutions are eligible for a subsidised interest rate of 6.5% for a tenure of maximum 20 years. The scheme is available on an amount of INR 6 lakhs and any loans beyond this amount will be at a non-subsidised rate of interest. This scheme covers loans for new constructions and additions of rooms, kitchen, and toilets to existing dwellings as incremental housing. To avail the subsidised rate of interest under this scheme, the carpet area of houses being constructed must not exceed 30 square meters for EWS and 60 square meters for LIG. The beneficiary at their discretion can build a house of larger area but the interest subvention would be limited to INR 6 lakhs only.

For the Middle Income Group (MIG) there are two income segments which fall under the purview of the credit linked subsidy scheme- loans on an amount of INR 9 lakhs will get an interest subsidy of 4% and those on an amount of IRN 12 lakhs can avail a subsidy of 3% for a maximum period of 20 years. The interest subsidy will be calculated at 9% NPV and loans above INR 9 and INR 12 lakhs will not be subsidised. The scheme for MIG will support acquisition/construction of houses (including re-purchase) of 90 square meters and 110 square meters carpet area as per income eligibility.

Housing and Urban Development Corporation (HUDCO) and National Housing Bank (NHB) have been identified as Central Nodal Agencies (CNAs) to channelise this subsidy to the lending institutions and for monitoring the progress of this component.

The affordable housing scheme gave the buyers an opportunity to buy a home however there should be easy finance available for them to even get their hands on these houses available at an affordable rate. The credit linked subsidy scheme has primarily been implemented to address the issue of financing the affordable housing scheme. This scheme will help fix the demand and supply situation of housing in the country. This scheme will go a long way to aid a first time home buyer.

The Pradhan Mantri Awas Yojna-Credit Linked Subsidy Scheme will help the common man if he chooses to opt for affordable housing. The government will give the first time home buyer a tax subsidy of 6.5% if the overall income of the household is INR 1.5 lakhs per month. Such initiatives are always welcome by buyers and developers both. It gives a much needed push to the economy for growth in general. These incentives can play a major role in reviving the Indian realty sector which is going through a relatively rough patch.


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