Lack of awareness among public, limited sizes and confusion over which towns covered under the scheme were reasons why the CLSS scheme did not kick off
To meet the affordable housing target of constructing 1.2 crore houses by 2022, the government has now extended the benefits of the Credit Linked Subsidy Scheme (CLSS under Pradhan Mantri Awas Yojana (Urban) by 15 months beyond December this year. The subsidy of up to Rs 2.30 lakh on home loans under the middle-income group category 2 and Rs 2.35 lakh for MIG 1 will now be available till March 2019.
So, why was the extension necessary? Is it because the PMAY (Urban) scheme launched on January 1 this year has not taken of? If so, why has the scheme not been successful? Experts cite low awareness levels among the general public wanting to avail home loans, the limit set for the size of the apartments and the confusion regarding towns that are covered under the list of statutory 4,300 towns as the main reasons for the scheme now being able to realize its full potential.
“The government is worried about the lackluster response. It has taken time because the buildings take time to come up, takes time to reach out to all the people and for the subsidies to flow. Similarly, in case of the MIG scheme, when we validated it, we decided it will take time because when you talk to banks and housing finance companies, they are setting up systems, they are educating people and therefore they need more time. So the government took a bold call to extend it to March 2019 so that MIG buyers can enjoy the benefits of this subsidy on their home buying,” says Sriram Kalyanaraman, MD & CEO, National Housing Bank.
Most bankers say that most people purchase a house in a location not necessarily because a CLSS subsidy is available. They will not shift to a location because a subsidy is available in that area. A buyer will continue to purchase a house in Noida not because a CLSS scheme waiver is available but because it is closer to his workplace or due to other factors that dictate his decision to buy a house.
Another reason is that the PMAY amendment is effective only from June 27 while the scheme was launched in January. Lot of people with incomes between Rs 6 lakh to Rs 12 lakh fall in this category, so do people with incomes of Rs 12 lakh to Rs 18 lakh. Agreed, the subsidy is a lot of money and a lot more people come under it, considering that anybody with a salary between Rs 1 lakh to Rs 1.50 lakh a month fulfils the criteria. But not everybody is waiting for the CLSS scheme. As many as 30 percent to 50 percent of people buying property now already have their first homes. In that respect, for first-time homebuyers, this limit is a bit high as most of them have already invested.
“Most people who qualify have not made the cut because even if they are eligible, they already have a first house. Most of them buying property now are those buying a second house, migrating to a bigger house or they have surplus cash flows at their disposal,” say bankers.
How the statistics stack up
MIG sections have been brought under the ambit of CLSS from January 1, 2017, with a provision of Rs 1,000 crore for this purpose. So far, over 54,000 beneficiaries, including 2,300 MIG beneficiaries, have been given interest subsidy under CLSS and more applications are under process. So, the Rs 1,000 crore provided for MIG is yet to be exhausted.
As per data from Wishfin.com, the maximum applications received for home loans in the Rs 12 lakh to Rs 18 lakh income bracket from the Southern region (37 percent) followed by the West (26 percent), Northern region (21 percent) which included cities such as eastern region (16 percent). The top three cities that received loan applications in this bracket were Delhi, Bengaluru and Hyderabad.
Lack of clarity
How easy is it for the homebuyer to avail of the CLSS subsidy on the loan application with banks and housing finance companies? As per income tax department data, there are 68 lakh people earning about Rs 18 lakh and out of this number some may already own a house. And people who are actually planning to buy a house need to have clarity on how to avail of the CLSS scheme. “The government needs to send out the message that a person can benefit from the scheme by merely signing on a single document which is as simple as signing an affidavit,” say experts.
According to a report by Wishfin, besides the lack of clarity, other challenges facing the scheme are that the process defined by NHB have no checks on implementation. Different banks are using different processes. Only a few banks make a single file for both the home loan and the PMAY. There is lack of trained staff for the scheme.
“The main issue is that different banks are following different processes. As per income tax department data, there are 68 lakh people earning about Rs 18 lakh and out of this number some may already own a house. And people who are actually planning to buy a house need to have clarity on the process of availing the scheme. So, to get the scheme across, the government has to make it clear they can become part of the scheme simply by signing on a single document which is as simple as signing on an affidavit. Once that is communicated, a large number of bench sitters will come forward to encash the freebie being offered by the government,” says Rishi Mehra, CEO of Wishfin.com
A lot of people are fence sitters, even if there is a scheme they are not yet convinced that now is the right time to buy property. It is therefore important that the scheme should be advertised well. Builders too need to make buyers understand that the scheme is available to them, he says.
Confusion regarding towns that are covered under statutory list
Some banks are hesitant to provide subsidy for towns that are not listed among the 4,300 towns “There is still confusion with regard to which towns are covered because of which financial institutions are not pushing loans from these locations as the onus of correct data lies with the financial institution and if during audit it is found that the town is not covered under the list, the onus of recovering the money is in the institution. Therefore they are consciously not going beyond the 4300 locations,” says a banker.
As per the initial guidelines, a home buyer cannot avail the interest subsidy under PMAY for the purchase of a house in an area notified by development authorities. Only statutory towns under Census 2011 and towns notified by the state governments are eligible for coverage under PMAY. There are over 4,300 such towns in the census. But ministry sources say that post the amendments to the PMAY scheme, buyers in most of these towns can avail of the scheme.
Bankers also say that the other challenge is got to do with the size of projects that comply with the scheme – it caters to only those housing units that are 90 sq m and 110 sq m and such sizes are difficult to come by in most tier 2 cities where the houses are bigger. “By capping the size of the unit between 90 sq m to 110 sq m some properties have gone out of size,” they say.
Commenting on the size of the unit for which the CLSS can be availed, Kalyanaraman says that when the government designed the scheme, it was meant to go to the real middle income group but if 150 sq m is the demand, “we would examine it and take it back to the government, discuss and come back but I assume some limit has to be there. Having said that I would also request the builder lobby to come forward to take the scheme forward as their initial hesitation was whether the subsidy will reach on time to the buyers. At NHB we approved it in flat four days. We credit the subsidy to the institution and let us take that the institution takes one or two days, probably from the time he gets his home loan account, there are customers who can get subsidy within the next 15 to 20 days. In short, processing is not a problem.”
“Sizes are a limiting factor. My suggestion is why should you have a cap on the area of the housing unit when you have defined incomes? The limit of 110 sq m should be increased to 130 sq m carpet area,” says Getamber Anand of ATS Infrastructure Ltd.firstname.lastname@example.org