Interest subsidy scheme makes more sense for smaller towns

The benefit in the scheme is a function of property price - lower the cost, higher the benefit

If you stay in tier-II or tier-III cities, you stand to benefit the most from the government’s newly-introduced credit-linked interest subsidy scheme for the middle class. For those in metros, the scheme does reduce the cost of purchase but not as significantly.

“The benefit in the scheme becomes a function of property price as the maximum benefit an individual can avail is capped. Lower the price, higher is the percentage of the subsidy,” says Mudassir Zaidi, a property consultant.

If an individual earns between Rs 6 lakh and Rs 12 lakh a year, the government will provide an interest subsidy of four% or a maximum of Rs 2.35 lakh for a house that has a carpet area of up to 90 sq m (968.75 sq ft). Those with annual income between Rs 12 lakh and Rs 18 lakh will get an interest subsidy of 3% or a maximum of Rs 2.3 lakh for a house with a carpet area of 110 sq m (1,184 sq ft) or less.

In metros such as Mumbai and Delhi, a flat with 1,184 sq ft carpet area would cost at least Rs 1.5 crore. “If it is a property without amenities, the super built-up area would be at least 30%, more. For projects with lobby, club house, gymnasium, parking, society area, and so on, the built-up area would be at least 50% more,” says Ashutosh Limaye, national director-research, JLL India. It means, you would actually be paying for a property that is between 1,539 sq ft and 1,776 sq ft. 

Those earning Rs 18 lakh a year will only be eligible for a loan between Rs 75 lakh and Rs 85 lakh depending on the finance company. On the higher side, they can afford a property worth Rs 1.06 crore with a loan-value-ratio of 80%. “In this price, only one bedroom-hall-kitchen would be available in bigger metros,” says Zaidi. For a Rs 1.06-crore property, the saving for the buyer would be 2.17% if he opts for the interest subsidy scheme. 

In tier-II cities such as Bhopal, Kochi, Lucknow, Nagpur, Patna, Surat, Visakhapatnam, and so on, a 1,184 sq ft carpet area flat can be purchased for Rs 60-80 lakh. The subsidy can be 3-4% of the property price. In Tier-III, it can be five% or more.

If you meet the eligibility criteria, all you need to do is approach a lender, which has enrolled in this scheme and fill a form. The government directly pays the lender the subsidy amount upfront, which will be adjusted against the loan, thereby reducing your equated monthly instalment. The scheme is valid from the beginning of the calendar year. Thus, anyone who booked a home after January 1, 2017, is eligible. “The scheme is flexible and transparent. It is designed in such a manner that the borrower can avail it easily without any hassle,” says Naveen Kukreja, co-founder and chief executive officer, Paisabazaar.com

Mehra, founder and CEO, Wishfin, says: “The best part of the scheme is that it does not specify the price of the flat. This makes it attractive for all segments of buyers. A person can avail it for resale flats and also for house under-construction where payments are linked to progress of the project.”