An initiative known as “Pradhanmantri Awaas Yojna” has been taken by our government to provide shelter in the form of subsidized houses to every individual on a very attractive interest rates. To finance affordable housing has been one of the key focus across the urban smaller cities and semi – rural areas. A tremendous growth and demand can be witnessed in this segment as people now desire to have their own Homes. The growing demand has created multiple offers that targets various segments within the Affordable Housing segment. Banks/ NBFC’s have created subsidiaries that focus only and only to provide affordable housing to II Tier & III Tier cities, semi – rural areas and urban poor segment. Affordable housing segment aims to empower this segment and help them to buy their own dream houses. A smooth processing along with lot of special offers, schemes and best rate of interest is provided to reach and cater the housing finance need of this segment. Affordable housing allows to avail home loans for residential property purpose, loan takeover, home renovation, land purchases, construction & project finance to the builders.
It refers to housing units that can be afforded by that section of society whose income is below the low / normal household income (below poverty line). For developing countries affordable housing is a key issue as the major number of population is unable to buy houses at the market price.
An income is the primary factor that determines the affordability. This causes a pressure on government to cater an increasing demand for the affordable houses. The Indian Government is taking various measures to meet the regular increasing demand for affordable housing along with some developers and stressing on public-private partnerships (PPP) for the development of such units.
Urbanisation and housing reveal a nation’s economic growth and social wellbeing. India’s urban population is growing at an average 2.1% every year since 2015. It is likely to reach 60 crore by 2031 (up from 37.7 crore today). But the growth in housing has been unable to keep pace. Currently in India, the housing shortage is almost 1.9 crore units. 96% of the urban shortage is accounted for the economically weaker sections (EWSs) and lower-income groups (LIGs).
Key features of Affordable Housing
An Indian resident can avail this loan starting at a minimum of Rs. 1,00,000. For the property that cost Rs. 20,00,000 one is eligible to get the 80% to 90% of the cost of the property. For a loan amount in the bracket of 1 lakhs to 35 Lakhs, the loan amount is 80% of the property cost. Repayment can be done in a comfortable time frame in EMIs. For Salaried employees the loan life is up to 30 years whereas for self employed it decreases up to 20 years.
The NRI’s also get the facility to apply for the loan. The loan amount to property value and other terms and conditions remain the same as Indian residents but the tenure available is shorter. NRIs with a professional qualification get this loan for 20 years and others loan life is only for 15 years.
Affordable Housing also allows Pensioners to get the loan to fulfill the owned house dream. A guarantor is required for the same and the term for the loan will be 15 years or until the person turns 70, whichever is earlier.
Women are entitled with lower rate of interest on home loans. A woman needs to be an applicant or a co-applicant to enjoy the benefits.
There is no specified limit to the loan amount for affordable housing. However loan amount is fixed on the basis of eligibility criteria. The loan amount varies from organization to organization. Generally it is from 1 Lac to 30 Lac.
EMI & Interest Subsidy
Borrower receive the subsidy to the borrower’s account which is credited to upfront by deducting it from the principal loan amount.
The borrower has to pay EMI as per lending rates on the remaining principal loan amount.
The subsidy will be disbursed in maximum 04 installments on proportionate basis.
It will depend on receipt of information regarding the loan disbursed by the Bank/ NBFC to the eligible borrower / beneficiary.
The subsidy installment will be linked to the disbursed amount by the Bank to the beneficiary. (Need to Know which are the factor effect your loan EMI)
In affordable Housing Loan Scheme 2% p.a. on the amount of EMI as a penalty for the period of default.
No prepayment charges are charged in case of early closure of the loan.
Marketability & Search Report
Under Affordable Housing Loan Scheme respective States/ UTs can adopt the approach of deemed building permission and layout approval for EWS/ LIG housing on the basis of pre- approved layouts and building plans or exempt approval for houses below certain built up area or plot area.
Eligibility for Affordable housing
- Individual has to be 21 years or above having regular income.
- One should not be a default borrower of any Bank/ NBFC under category of Economically Weaker Section (EWS)/ Low Income Group (LIG)
- An individual has to submit self declaration on income for the identification as a EWS or LIG beneficiary under the scheme along with an affidavit as an income proof below the taxable limit
Salary slips/salary certificate/other income coupled with ITR / IT Assessment Order / Form 16 as an income proof above the taxable limit. (Eligibility norms which bank consider while sanctioning a Home Loan)
Beneficiary belonging to LIG or EWS
- A beneficiary family include husband, wife and unmarried son(s) and daughter(s)
- Any family member of the beneficiary family should not own a Pucca house (an all weather dwelling unit) in his/her name or in the name of any member of his/her family in any part of India
- An adult earning member (irrespective of marital status) will be treated as a separate household.
Eligible Economic Weaker Section (EWS)
- Households who fall in an annual income group of up to Rs.3,00,000/-. However, States/ UTs do have the flexibility to redefine the criteria of annual income as per local conditions with the Center consultation.
- Any super structure that have a carpet area of up to 30 Sq Mt with adequate basic civic facilities and infrastructure services like road, toilet, water, electricity etc. However, States/UTs can determine the single unit or a multi storied area of EWS as per their local needs with information to Ministry
Eligible Low Income Group (LIG)
- Households those who have an annual income between 3,00,000 and 6,00,000 fall into this category. Though states/ UTs have the flexibility to redefine the criteria for annual income as per the local conditions in consultation with the center.
- Any structure that have a carpet area of up to 60 sq Mt with adequate basic civic facilities and infrastructure services like road, toilet, water, electricity etc. However, States/UTs can determine the single unit or a multi storied area of EWS as per their local needs with information to Ministry
Government thrust on affordable housing
Indian Government has recognized the need to fill the gap in urban housing. Large-scale affordable housing projects will be of great help. So, an ambitious project is announced by the government. It aims to provide ‘Housing for All by 2020’. Government has taken many initiatives to turn this dream into a reality. For example, it facilitated a rebate of 4% interest rate on housing loans of up to Rs 9 lakh. On loans up to Rs 12 lakh the rebate stands at 3% .
Besides, the government granted grand infrastructure to affordable housing. Developers can enjoy cheaper sources of funding, including external commercial borrowings (ECBs). The promoters of Affordable housing will also get more time for project completion. The deadline from the current three years has increased to five years.
Attractive home loan offers for borrowers
The driving demand has made availability of cheap finance is as well. In India, the home loan market consists of 76 lenders. These include private banks, state-run banks and housing finance companies (HFCs). All these companies are trying to attract more number of customers.
Government policy like Real Estate Regulatory Authority (RERA) is creating interest for new buyers confidence in reality sector. New entrants (finance companies) are crowding the space, but HFCs are dominating it. They are able to gain more numbers over their traditional banking counterparts. Middle-class and aspiring lower-middle-class borrowers is what HFCs are focusing on . They are lending to people with an annual income that ranges from Rs 2 lakh to Rs 10 lakh.
Now a days HFC’s are offering tailor-made affordable housing schemes at 8.5–9% to the borrowers. Borrowers can avail a higher loan-to-value (LTV) ratio as well. The amount can go up to 85% for housing units that are ready or near to the completion stage. A traditional bank would offer only 80–85%. Besides, the products of HFCs can be accessed more by the self-employed. This includes professionals and small businessmen. It is difficult for such individuals to get credit from a traditional lender.
The biggest challenge for the Government to create affordable housing is the availability of land in urban areas. Unless an adequate land is made available, creating 2 crore homes is a distant dream. According to an estimation, close to 57,392 acres of land will be required to build the 2 crore homes. If one house to assume a size of 500 sq ft per home and an available Floor Space Index (FSI) of 4. This will require availability of non-essential lands currently being under by large government bodies.
The demand for low-cost homes will continue over the next decade. This need a sustained focus of the government and the tailor-made schemes of HFCs to help the vast need. All things considered, the target of housing for all seems like an achievable target by 2022.