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Pradhan Mantri Awas Yojana - Explaining The Credit Linked Subsidy Scheme for MIGs

20th March 2017

It is with great delight, I wish to discuss the recent guidelines that have been notified for the ambitious Pradhan Mantri Awas Yojana (PMAY) introduced by the Ministry of Housing & Urban Poverty Alleviation. PMAY as we know caters to urban centers and was launched in the year 2015 with an aim of providing ‘Housing for All by the year 2022’. While the primary beneficiaries of this scheme are the people falling in the EWS and LIG category, the scope of the PMAY was widened in 2017 with the introduction of the Credit Linked Subsidy Scheme (CLSS) that offers interest subvention on home loans taken by eligible citizens for buying or constructing a house.

The real estate industry as well as home buyers will both benefit from the recent developments as it is for the first time that any national government has recognized the Middle Income Category (MIG) as ones needing some sort of financial support in their quest for a home. Demand for housing, especially in the affordable category, is very eminent in our country driven by rapid urbanization, rising incomes and increase in numbers of nuclear families. However, real estate prices have run up in the past decade making it very difficult for those in the MIG category to own their dream home. Through the CLSS, the government has offered to share the interest liability on a loan taken for a home purchase by the qualifying individuals.

Further, I have discussed the schemes’ mechanics.

Who all are eligible to receive the CLSS benefit?

For the purposes of PMAY the government has divided households into various income categories. EWS is the economically weaker section, LIG is low-income group, MIG is the middle income group (2 categories), and HIG is the high-income group.

By including MIGs, as described under the policy, the government is making it viable for many citizens to go ahead with the purchase of their first homes. Middle Income Group, eligible for interest subsidy on home loans, will comprise of people earning above Rs 6.00 lakh and up to Rs 18 lakh per annum as family income in case the beneficiaries are married or individual otherwise.

MIG 1 Category – Beneficiaries with family incomes above Rs. 6 lakh and upto Rs. 12 lakh

MIG 2 Category – Beneficiaries with family incomes above Rs. 12 lakh and upto Rs. 18 lakh

The interest subsidy will be as follows:

1. 4% on housing loans of up to Rs 9 lakh for MIG 1 category

2. 3% on housing loans of up to Rs 12 lakh for MIG 2 category

Irrespective of ones amount of loan, as long as the unit sizes comply with the norms laid down, the beneficiaries will avail the interest subsidy under the CLSS upto the limits described above.

How does the direct benefit transfer work under the CLSS (MIG)?

As per the MD & CEO of National Housing Bank if we were to assume the normal housing loan rate to be fixed at 8.65% on a 20 year loan, then the financial benefits under the scheme will be as follow:

1. The MIG 1 category is set to see a reduction in their monthly outgo of EMIs by Rs. 2,062 on a loan of Rs 9.00 lakh

2. The MIG 2 category will see their EMIs fall by Rs 2,019 on a loan of Rs 12.00 lakh

Further the government will provide direct transfer of the savings over the life of the loan as a one time benefit at the time of loan origination. The savings over the life of the loan will be discounted at a rate of 9% to arrive at the subsidy amount.

The potential savings for the MIG category is as follows:

1. Rs 2.35 lakh on a loan of Rs 9.00 lakh in the MIG 1 category

2. Rs 2.30 lakh on a loan of Rs 12.00 lakh in the MIG 2 category

The home loan one avails to qualify under the scheme will be for a tenure of 20 years or lower.

Further criterion to qualify under the PMAY CLSS:

1. He/she should be a first time buyer of a house. He/ She should not own a pucca house in his/her name or in the name of any family member in anywhere in India. [Family comprises of husband, wife and unmarried children].

2. To be eligible for PMAY - Income in case of EWS should not exceed Rs.3 lakh per annum, LIG should not exceed Rs.6 lakhs per annum, MIG 1 should be between Rs.6 to 12 lakh per annum and MIG 2 should be between Rs.12 to 18 lakh per annum.

3. The carpet area of houses being constructed under PMAY should be up to 30 sq. m. for EWS, 60 sq. m. for LIG, 90 sq. m. for MIG 1 and 110 sq. m. for MIG 2. The loan can also be taken for buying, constructing or renovating the house. It can be for addition of rooms, kitchen, toilet etc. to existing homes as incremental housing.

Conditional clauses for all of the above:

1. The tenure for the home loan shall be for a maximum of 20 years.

2. If the home loan amount exceeds the aforementioned amount for the respective category, then the subsidized interest rate shall be applicable only up to that amount. On the remaining loan amount the beneficiary will have to pay the interest rate as per the contract.

E.g.: If a loan of Rs.16 lakh has been taken at 9% interest rate by a beneficiary from MIG 2 category, for tenure of 15 years; then the subsidized interest of 6% will be applicable to Rs.12 lakh only. On the remaining Rs.4 lakh, interest rate of 9% will be applicable.

Summary of the revised CLSS scheme as described above:

* Valid for loans taken during the calendar year 2017

**Maximum benefit possible

We believe both the amount of subsidy as well as the mechanism of direct credit will work to the favor of home buyers who have been in wait and watch mode for sometime. Further the unit sizes under the MIG category are considerably encouraging, as comfortable 2 & 3 BHK units can be created to qualify under the scheme. Even in our post budget analysis we had taken a favorable stance on middle income and affordable housing, the PMAY CLSS scheme for MIG category takes it one step ahead.

You can get more information on the government's PMAY website at goo.gl/fdIv1K.