Ever since they won the Lok Sabha elections in 2014, the BJP government and Prime Minister of India, Narendra Modi, have launched a number of social security schemes. The aim of these schemes is to harness the immense power of India’s great population and enable financial and social security measures. Apart from schemes for financial inclusion, pension, and family insurance, PM Modi launched a housing scheme called the Pradhan Mantri Awas Yojana (PMAY).
The PMAY was launched on June 25, 2015, in New Delhi and under the scheme, the Government of India promised to construct over 2 crore houses by the year 2022. These houses will be available to the poor families of the country.
Subsidy Announced Under the PMAY
When the Pradhan Mantri Awas Yojana was initially launched, the scheme schedule said that people from Economically Weaker Sections (EWS) and Low Income Groups (LIG) will be given a subsidy on the cost of the apartment. This subsidy, the government said, would range between Rs 1 lakh to 2.3 lakh and this amount would come from the government’s exchequer. Apart from this, the PM also promised to offer a subsidy.
This subsidy would be provided in the form of a reduced rate of interest on housing loans to the LIG and EWS applicants. Housing loan interest rates at the time of the scheme launch was about 10.5 percent, and the interest rate promised to those availing of the scheme would have a 6.5 percent interest subsidy.
With a loan tenure going up to 15 years and a maximum loan amount going up to Rs 6 lakh, the subsidy would add up to anything between Rs 1 to 2.3 lakh.
Loan Amount Covered by Subsidy Increased
On December 31, 2016, in his New Year’s Eve speech, Prime Minister Narendra Modi addressed a number of pressing issues. While demonetization and tax evasion were the central topics he spoke about, he also introduced new additions to the Pradhan Mantri Awas Yojana.
The PM said that in urban areas two new categories will now be available for application of housing loan and availing subsidies.
Those applying for a housing loan of up to Rs 9 lakh this year (under the scheme) will be eligible to avail an interest subsidy of 4 percent and those availing of a home loan between Rs 9 lakh and Rs 12 lakh will be eligible to receive an interest subvention of 3 percent.
This effectively means that the loan amount that a PMAY applicant may take has been effectively doubled, though the subsidy may be in variance with the loan amount.
“Two new middle income categories have been created under the Pradhan Mantri Awaas Yojana in urban areas. Loans of up to INR 9 lakh taken in 2017, will receive interest subvention of 4 percent. Loans of up to INR 12 lakh taken in 2017, will receive interest subvention of 3 percent.”, said the PM in his speech.
Likely Benefit for Millions
The Prime Minister’s announcement has been welcomed by many in the housing finance sector. Millions will benefit from the scheme, experts believe. The announcement by itself has brought good cheer among the home loan seeker.
The government is yet to reveal the fine print, though. Details about the income levels, size of the housing units, and other eligibility criteria for people to avail these loans are yet to be revealed. After the Prime Minister’s last countrywide address on 2016, many leading lenders such as SBI, HDFC, and Kotak Mahindra have dropped their lending rates.
Combined with this the subsidy is likely to benefit millions in the lower economic echelons.
EMI Less Than Rent
One of the most significant outcomes of such an interest subsidy is that it is likely to make loan repayment EMIs less than the average rent paid. For example, if an eligible loan applicant (under the PMAY) is granted a loan amount of Rs 9 lakh for a period of 15 years, the interest charged will only be about 5 percent. This is taking current interest rates to be about 9 percent and the applicable subsidy in this case is some 4 percent. Thus, the EMI each month will be about Rs 7100, less than the average rent in many cities.
Benefit for Rural Applicants
The Prime Minister also announced that the government has substantial benefits for Pradhan Mantri Awas Yojana applicants from rural sectors as well. The Government of India planned to increase the number of housing units being built under the scheme for the poor by about 33 percent. Apart from this, in the rural regions of the country also two new categories for loan applications will be available. In these areas, loans of up to Rs 2 lakh will be available with an interest subsidy of 3 percent. This loan may be taken both for construction of new houses or for extension of an existing property.