The Budget 2011-12 brought good news for the housing industry as well as prospective homebuyers. The government has extended the 1% interest subsidy for home loans up to Rs 15 lakh where the cost of house does not exceed Rs 25 lakh. The interest subvention scheme is currently available for home loans up to Rs 10 lakh taken for buying house worth not more than Rs 25 lakh.
"All this along with the increase in tax exemption limit for individuals from Rs 1.6 lakh to Rs 1.8 lakh will surely give an impetus to affordable housing," says Ramesh Sanghvi, director, Sanghvi Group. "This is a budget that will boost property demand in small cities," adds Aditya Verma, chief operating office of Makaan.com.
Housing loans up to Rs 25 lakh have been included in priority sector lending of banks. Earlier, only home loans up to Rs 20 lakh were included in this bracket. This will increase disbursement of loans by banks as loans granted to by banks to housing finance companies for on-lending to home-buyers of up to the revised new limit will be treated as priority sector loans. Banks will thus not have to lend small amounts to individual home buyers to meet their priority sector targets but can provide the entire amount as loan to a housing finance company and get the disbursement classified under 'priority sector'.
However, homebuyers may not always be in a position to enjoy the benefit of the interest subsidy. "A homebuyer planning to buy a house worth Rs 25 lakh may find it extremely difficult to mobilize Rs 10 lakh from his own sources. For the interest subvention scheme to be successful in true sense, the finance minister should have extended the subsidy for loans up to Rs 20 lakh," Verma says.
"Raising the priority home loan limit is good news for the lower income segment, but it will do nothing to ease the pain in the metropolitan cities where real estate prices are high," says Anuj Puri, chairman and country head, Jones Lang LaSalle India.
Monthly instalments for a home loan of Rs 15 lakh