Home Loans for millions in the low-income group might be key
The government’s vision to achieve Housing for All by 2022 will be largely dependent on its ability to stimulate the real estate sector in India by bringing millions in the lower income group under the ambit of home loan eligibility. The policies of the government and the Reserve Bank of India’s (RBI) will play a key role in providing liquidity to the sector by stimulating demand, especially in the affordable housing segment, which is the most crucial impediment to this vision’s realization.
The RBI’s policies significantly impact how housing is financed, which further determines the affordability for home buyers, which inturn will significantly impact providing Housing for All by 2022. While advanced economies have a better laid out financing system for housing sector, it is a particularly challenging in developing economies like India where financial systems are not well-developed and many low-income citizens who require home loans are ‘unbanked’ and work informally. Inclusion of this group will be perhaps the most challenging task for the current government.
That said some important first steps have recently been taken. RBI has laid down the home loans eligibility criterion to provide finance to individuals for affordable housing. INR 50 lakhs home loan amount has been approved for houses of costing INR 65 lakhs which are located in one of the six metropolitan centres of the country. In other cities/ towns INR 40 lakh has been approved for a house costing INR 50 lakhs per family. RBI also defined the affordable housing segment under ‘priority sector’ lending and will periodically review the definition of affordable housing on account of inflation. However, the government should strongly consider extending interest subvention to cover the revised limits of cost of houses eligible for housing loans.
A double stroke with one stone, the RBI has not only defined the price-bracket in which developers can place affordable housing but has also disconnected it from the speculative forces of the market while keeping the power to redefine the affordable housing pricing with itself. This is important for the sector to remain stable and within the reach of the masses critically impacting the ability to provide Housing for All by 2022
Recently, Mr Raghuram Rajan, Governor, Reserve Bank of India (RBI), announced no change in the interest rates despite growing demand for a cut to ease inflationary pressures. In a statement, CREDAI, a real estate body said it advocated a reduction in interest rates to facilitate lowering of entry barriers and spur demand for the real estate sector and free home loan interest rates from inflation expectations.
While the RBI has taken several important steps towards the availability of Home Loans, an immediate reduction in home loan rates might spur the revival of the real estate sector and with it, the Indian economy leading to the realization of the government’s vision to provide Housing for All by 2022.