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Government plans interest sops to ease home loans

28th November, 2008

Business Standard

Government plans interest sops to ease home loans
Business Standard
Rituparna Bhuyan / New Delhi November 28, 2008, 0:42 IST
The government is considering a proposal to make home loans cheaper for consumers through interest subsidy, aiming to stimulate demand in the realty sector which has a spin-off effect on many industries like cement and steel, said a senior government official, who declined to be named.
The proposal will also include providing loans at below market rates to real estate developers. But the loan disbursed under this will come with a number of conditions like an upper ceiling on selling price of flats and individual homes.
The threshold limit for loans is likely to be around Rs 10 lakh, as it was estimated that nearly 75 per cent of the housing loans were below Rs 7.5 lakh. Only developers who have land in their possession or already in the middle of a housing project would be eligible for the government subsidy. Individual planning to construct homes on their own would also be eligible, said an official.
The panel of secretaries headed by Finance Secretary Arun Ramanathan has advised the urban development ministry to prepare a note in this regard and present it to the apex committee headed by Prime Minister Manmohan Singh.
The final decision on the proposal will be taken by the apex committee.
“Discussions were held on this proposal which includes making available loans at around 8 per cent interest rate, which could remain fixed for a period of around five years. The government will pay for the balance interest amount,” said a senior government official.
Interest rate charged by commercial banks in India has risen sharply in the last one year, with prime lending rate of certain banks increasing above 14 per cent as against around 9 per cent a year ago. This has dissuaded many home buyers to postpone their home purchases and also increased loan repayment amount.
To avoid a repeat of sub-prime like crisis in India, credit worthiness of borrowers would be scrutinised as in normal loans.
This measure is being mooted to ensure that the demand in the economy does not slow down. “If the housing sector does not kick off in the next two to three months, it could have a domino effect. Currently, most housing projects are stuck because of the liquidity crunch. A boost to this sector will mean additional demand for cement, steel and other material, which is likely to stimulate the economy. Moreover, it would also ensure that jobs in the sector are not lost,” the source added.
According to analysts, nearly 80 per cent of the total real estate demand originates from the housing sector. By 2010, nearly 530.5 million square feet of residential space will be developed in the premium category alone in seven major cities, which translates to the supply of 200,000 units per year in the middle income group (MIG) and high income group (HIG) segments.
Indicus Analytics estimates that between 2008 and 2015, 17 million additional dwelling units will be needed.


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