Friday, October 31, 2008

Will Rs 1100 crore home loan rates subsidy for urban poor work?

Not sure, at this point of time. We have to wait for the results of Loksabha Elections 2009!

The Ministry of Housing is crafting a scheme that would persuade banks to give home loans to the urban poor at a 5% discount on interest rates. CNBC-TV18’s Vivian Fernandes reports that the scheme is well-intended but is not the kind of lifeline that the realty sector is looking for.

S Sridhar, CMD, National Housing Bank, said, “The Ministry of Housing is considering a proposal whereby an interest subsidy will be available for the urban poor.”

The target groups that the government has in mind might not be the kind tracking the slide of the Sensex. These are households earning between Rs 3,300 and 7,300 a month, described in government-speak as falling under the economically-weaker section (EWS) — a low-income group.

Sridhar said, “The justification [behind the scheme] is that income-tax payers are entitled to deduction both on principal repayments and interest when they take home loans. Now a non income-tax payer with income up less than Rs 1 lakh [per annum] does not get access, will pay a higher interest rate and even if he does, he gets no concession. For people like us, our post-tax EMI is actually lower than that of a driver.”

The National Housing Bank has calculated that a 5% subsidy on home loans would be equal to the benefit that income-tax payers get from housing loan and interest deductions. The rebate will be limited to loans up to Rs 1 lakh but will extend to the life of the loan, which could be up to 15 years. The plan allocation has been made keeping four lakh houses in mind. This is an open-ended scheme, and the subsidy will increase with rising demand.

Officials at the Ministry of Housing and Urban Poverty Alleviation did not speak citing the model code of conduct. But we gather that the Expenditure and Finance Committee headed by the Expenditure Secretary has approved the proposal. There is a plan allocation of Rs 1100 crore and a budgetary allocation for this year has been approved by the Parliament. The scheme is being drafted and will be implemented once the Cabinet Committee on Economic Affairs gives its assent. Moneycontrol

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