Interest subvention for low-cost housing to be discussed in Cabinet this week

The Union Cabinet is likely to take up this week a proposal to raise the limit of housing loans eligible for interest subvention of one per cent to Rs 15 lakh from the current Rs 10 lakh. The move aims to spur activities in the real estate sector, considered vital for the overall economic growth.

“The proposal is slated to come up for the Cabinet meeting this week,” an official said here on Sunday.

It was in the Union Budget 2012-2013 that the scheme of interest subvention for low-cost housing was announced by former finance minister Pranab Mukherjee. The subvention will be available only if the cost of the house does not exceed Rs 25 lakh.

Earlier, one per cent interest subvention was for up to Rs 10 lakh of loans, provided housing cost did not exceed Rs 20 lakh.

As much as Rs 3,000 crore was disbursed on this scheme in 2011-12.

Currently, the real estate sector is going through a slump, owing to low demand and high interest cost. Despite this, developers are increasing prices due to factors like high cost of inputs and high interest cost.

Affordable housing, on the other hand, has not gained much acceptance from the developers, courtesy high cost of land and low floor space index, coupled with numerable approvals needed to start a project.

Only a very few developers have housing in the Rs 25-lakh category. A few months ago, Mahindra and Mahindra’s realty arm, Mahindra Lifespaces, announced plans to venture into affordable housing with homes priced between Rs 7 lakh and 15 lakh in Maharashtra and Tamil Nadu.

Others offering units in the affordable segment are Tata Housing, the Usha Martin Group and Jerry Rao’s Value and Budget Housing Corporation.

Other developers stay away from affordable housing due to low margins.

India’s overall economic growth slipped to 6.5 per cent in 2011-12 after the fourth quarter economic expansion fell to 32-quarter low of 5.3 per cent.

Initial indications like almost flat growth in industrial production in April and contraction of exports and imports in the first two months of this fiscal have not have been very encouraging. These data cast doubts on even the possibility of a 7.6 per cent growth rate for this financial year. Now, none talks about that figure for 2012-13.

The approach paper to the 12th five-year plan (2012-17) has pegged the economic growth at 9-9.5 per cent -- with strong rider that even the lower range of the band is an ambitious but achievable target provided the country has the political will to undertake strong reform measures.

However, the Planning Commission had said earlier last week that the average annual growth target of nine per cent for the 12th Plan was “simply not possible “to achieve. “In all probability, the percentage would be scaled down to 8-8.5,” according to Montek Singh Ahluwalia, the panel’s deputy chairman.