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The Finance Minister Nirmala Sitharaman on September 14, 2019, announced a slew of measures for the real estate sector to fund stuck housing projects and ease borrowing norms for lenders financing affordable home buyers. The Finance Minister announced a last mile ₹20,000 cr affordable housing package to benefit around 3.5 lakh home owners. The government will contribute around ₹10,000 cr to this fund on the lines of NIIF, while investors like LIC, private capital, sovereign funds, DFI will contribute the remaining ₹10,000 cr. In a press briefing, FM Nirmala Sitharaman said the government would set up a special window worth Rs 10,000 crore to provide last mile funding for housing projects, which are non-NPA (Non-performing asset) a non-NCLT (National Company Law Tribunal) projects & are net worth positive in affordable and middle-income category.
The fund would be professionally run with experts from the housing and banking sector, the minister added. “They will identify projects across the country that are middle income and affordable scheme related where nearly 60% of their work is complete and they don’t have any more cash-flow to complete the rest of the 40%,” Sitharaman said. Different estimates suggest that there are 8.5 lakh to 14 lakh housing units which are incomplete and have been stuck due to different reasons across the country. In such a scenario, the package announced will help extricate more than a third of such distressed home owners.
Sitharaman also said the interest rate on housing building advance will be lowered and linked to the 10-year G-sec yields. The FM said that as part of affordable housing, the government will give additional deduction up to Rs 1.5 lakh for interest paid on loans borrowed up to March 31, 2020, for purchase of house valued up to Rs 45 lakh.
Relaxation of ECB Guidelines under Affordable Housing: The External Commercial Borrowing (ECB) guidelines will be relaxed to facilitate the financing of home buyers who are eligible under the Pradhan Mantri Awas Yojna (PMAY), in consultation with RBI. It will be an addition to the prevailing norms for affordable housing.
House Building Advance: The interest rate on House Building Advance will be lowered and linked with the 10-year G Sec Yields (7.7-7.75%). This move is expected to encourage more government employees to buy new houses.
Banks to reduce home loan interest rates: The government, on August 23, 2019, announced a slew of measures, including the banks’ decision to cut interest rates, a move that would lead to lower EMIs for home, auto and other loans. Linking of repo rates directly to home loan rates, will aid the home buyers to avail of faster and cheaper home loans.
Other measures announced to boost the economy, include setting up of an entity for credit enhancement for infrastructure and housing projects, a task force to finalise the pipeline of infrastructure projects and simplification of Know Your Client (KYC) procedure to improve market access for foreign investors. The government had also eased foreign direct investment (FDI) rules in many sectors to get economic growth back on track.
“The objective is to focus on construction of unfinished units,” Ms Sitharaman told reporters in New Delhi. The government will make offshore borrowing easier for affordable housing schemes, she said. Developers and other stakeholders in the sector have been asking the government for some relief measures or a bail out for long now. As per government estimates, the funding incentives will revive and benefit 3-3.5 lakh homes out of around 8.5 lakh housing units across the country.
Sources:
- https://www.businesstoday.in/sectors/infra/fm-announces-rs-20000-crore-fund-to-complete-construction-of-35-lakh-housing-units/story/379039.html
- https://economictimes.indiatimes.com/news/economy/policy/nirmala-sitharaman-real-estate-home-buyers-divestment-exports-economic-booster-key-highlights/articleshow/71124238.cms
- https://www.ndtv.com/business/nirmala-sitharaman-announces-10000-crore-for-housing-projects-not-in-bankruptcy-process-declared-npa-2100952
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