Finance Minister Arun Jaitley’s push for affordable housing should lead to lower cost of finance and more supply of units for those seeking such houses.
Jaitley has allocated ₹4,000 crore to National Housing Bank (NHB) with the aim to provide cheaper credit facilities to people belonging to the low-income group (LIG) and economically weaker sections (EWS).
Jaitley, while presenting the first Budget of the new NDA Government, said: “I propose setting up a mission on low-cost affordable housing which will be anchored in the National Housing Bank. Schemes will be evolved to incentivise the development of low-cost affordable housing.”
According to market players, the Budget allocations are “positive” for banks, housing finance companies (HFCs) and the housing sector.
According to Harshil Mehta, Managing Director and CEO, Aadhar Housing Finance, “Mostly this amount of ₹4,000 crore will be disbursed by NHB to affordable housing finance companies, which can then lend to their customers.”
This disbursement by NHB is, however, subject to certain predefined criteria, which means that not all housing finance companies will be able to access these funds. NHB will have to evolve a mechanism so that the fund reaches the most needed corners of the country effectively.
Maneesh Srivastava, CEO, Muthoot Housing Finance, believes that finance from NHB will come at a rate which will be at least 1.5-2 per cent cheaper than bank funding cost. So, companies getting such funds from NHB can pass on the benefit of lower interest rates to their customers.
This could be a huge positive as loan sizes in this segment are typically low (about ₹10 lakh or lower).
The move could also have an indirect positive impact in terms of supply of low-cost houses because it will motivate builders to build more affordable houses as institutional credit will allow people to buy such houses. A ₹4,000-crore fund also means more funds at lower rates for banks and HFCs to lend more money to the LIG and EWS segments. Hopefully, this will reduce the incidents of such people falling prey to moneylenders, who usually charge usurious rates on such loans.
In a bid to boost the supply of such houses, Finance Minister Jaitley has also exempted projects, which commit at least 30 per cent of the total project cost for low-cost affordable housing, from minimum built-up area and capitalisation requirements. Such projects, however, will be subject to three-year lock-ins.
This could mean that one could see more foreign direct investment in the affordable housing finance segment in the days ahead.
According to Mehta, “All these limits (which existed earlier) were impediments to foreign investment in this segment.”