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Aug 14, 2013, 08.11 PM IST | Source: CNBC-TV18

Cabinet to view 1% subvention proposal for Rs 25L homes

In what could be a boost for low cost housing, the cabinet on Tuesday is likely to take up a proposal to extend the 1% interest subvention scheme for specific loans, reports Priyanka Ghosh of CNBC-TV18.

In what could be a boost for low cost housing, the cabinet on Tuesday is likely to take up a proposal to extend the 1% interest subvention scheme for specific loans, reports Priyanka Ghosh of CNBC-TV18.

Currently, the limit for housing loans that are eligible for an interest subvention of 1% is Rs 10 lakh for homes not costing above Rs 15 lakh. But according to housing finance companies, Rs 15 lakh cap on the total cost, even in a tier II and III town is unviable today, with rising input costs.

The government seems to be paying heed to industry's demands and the cabinet may consider extending the subvention to homes that cost up to Rs 25 lakh. In fact, a recent report by Jones Lang Lasalle Meghraj says that India is short of at least 26.5 million housing units currently. According to industry experts, this move, tailored to spur demand in the low and mid income housing segment, could plug the deficit to some extent. Consequently, housing finance companies expect volume of transactions and disbursals to increase

Kapil Wadhawan, CMD, DHFL, says that in tier II, tier III cities, we have been seeing an active demand unlike tier 1 cities like Mumbai, Delhi and Bangalore. The demand in tier II cities has been fairly consistent; we have seen stable pricing there. Surely the government's move towards the 1% subvention, increasing that amount to Rs 15 lakh is a welcome move. I am sure that the government is as concerned as we are on these kind of initiatives which promote affordable housing.

Big ticket real estate companies, barring the likes of Puravankara and Tata Housing, typically focus on high end products. The Rs 15 lakh cap was an impediment to the success of the scheme but now the proposal of Rs 25 lakh cap might provide incentive for developers to enter the mid and low income segment and the dream of low cost housing may get a filip.

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