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Govt Housing Benefits only for Low Income Groups

Sunday, March 26, 2017

The credit-linked subsidy scheme (CLSS) under the Prime Minister Awas Yojana (PMAY) will help reduce the IRR on home loans by about 100 bps or imply 2-10% discount on purchase of new property, higher benefit at lower ticket sizes. The scheme alone may not be a catalyst for making a purchase decision; better employment opportunities and improving affordability will have to play a greater role, in our view.

The MIG segment will be included in this scheme from FY2018 to provide the following: (1) 4% subsidy for loans up to Rs0.9 mn and (2) 3% for loans up to Rs1.2 mn. Interest subsidy is credited upfront to the loan account of beneficiaries through lending institutions (banks/HFCs) resulting in reduced effective loan liability. The calculated subsidy for loans across categories is Rs0.23 mn. This benefit is only available to first-time buyers.

The CLSS for the MIG saves around 5-8% on Rs3-4 mn/unit home. With increasing ticket size, the impact of such subsidy reduces. While household income cap of Rs1.8 mn/annum can allow homes between Rs7-9 mn/unit, the benefits of the subsidy don’t stand much (about 3%).

 Most units offered by listed developers in metros are above Rs5 mn/unit and hence the benefits of such schemes are limited. We expect more developers to launch homes up to 60 sq. m. carpet in FY2018 (to gain benefits under 80-IBA), which could increase volumes; but value contribution will be limited considering the share of such units to the overall area under-construction. Most developers under coverage offer limited affordable housing homes today.  

CLSS is most beneficial for borrowers in loan of about Rs2 mn A high income cap provides relief to a large proportion of borrowers though, at the higherend would imply just about 3% benefit. The implied discount is meaningful at 5-8% in case of loan of Rs2-3 mn, which comprises about 25% of total loans of housing finance companies. With increasing ticket size, the impact of such subsidy reduces; it's about 3% in the higher-end.

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