The Pradhan Mantri Awas Yojana (PMAY) Credit Linked Subsidy Scheme (CLSS) is a scheme launched by our honourable Prime Minister Shri Narendra Modi for the Economically Weaker Section (EWS), Low Income Group (LIG), Middle Income Group-I (MIG-I) and Middle Income Group-II (MIG-II) of people.
An interest subsidy of 3 per cent to 6.5 per cent has been announced for loans ranging between Rs.6 lakh and Rs.12 lakh. For those in the EWS and LIG category who wish to take a loan of up to Rs.6 lakh, there is an interest subsidy (concession) of 6.5 per cent for tenure of 15 years. So far around 20,000 people have availed of loans under this scheme. This month, the Government increased the loan amount to Rs.12 lakh, targeting the mid-income category. The interest subsidy on loans upto Rs.12 lakh will be 3 per cent. In rural areas, interest subvention of 3 per cent is offered on loans up to Rs.2 lakh for constructing new homes or extension of old homes.
Today, while developers in India’s metropolitan cities are sitting on lakhs of unsold residences costing upwards of Rs.50 lakh, the country is estimated to have a shortage of nearly 20 million housing units needed by the rural and urban poor, at far lower price points of Rs.5-15 lakh. The PMAY aims to address this shortfall. With the increase in subsidised loan amount to ₹12 lakh, the scheme is expected to cover a higher proportion of the urban poor.
The PMAY will hopefully incentivise India’s construction and realty sector to reduce its traditional obsession with affluent home buyers in the cities.
For those in the lower and mid-income groups, the PMAY reduces the cost of acquiring a home by Rs.1lakh to Rs.2.3 lakh. The increase in the loan amount to Rs.12 lakh and extension of the scheme to mid-income group may make more homes within the reach of the urban poor. If you’re an investor, this scheme combined with a falling interest rate regime could mean improved loan growth for banks and NBFCs focussed on this segment. A pick up in demand for affordable housing will not only provide a leg up to the performance of banks and housing finance companies, but can also support growth of other allied businesses such as cement and steel.