How The Proposed Home Loan Scheme For Urban Areas May Work

The government's new scheme for home loans in urban areas is likely to be on the lines of Pradhan Mantri Awas Yojana (Urban), offering lower interest rates from banks, according to experts.

The proposed scheme holds significant potential as the affordable housing segment needs to be viable for the maximum number of buyers, they said. More so when contribution of affordable homes in total sales has fallen amid rising costs and higher rates.

Prime Minister Narendra Modi said in his Independence Day speech that the government will soon launch a scheme to provide relief in interest rates and bank loans that will benefit families that live in cities in rented houses, slums, chawls, and unauthorised colonies. The details of the scheme are yet to be announced.

The affordable housing market in India is estimated to be worth $1 trillion over the next few years, NITI Aayog said in report. According to Anarock Property Consultants, in the current urban housing shortage of approximately 11.2 million units, affordable homes priced less than Rs 40 lakh account for over 80% of the shortfall.

The total share of affordable homes sold declined to approximately 20% in first half of 2023 from 31% a year earlier, Anarock said. These sales across the top seven cities have been consistently falling since the pandemic even as demand for luxury homes has remained steady.

So far under PMAY(U), more than half of the 1.18 crore houses sanctions have been completed, according to government data. Beneficiary-led construction, affordable housing in partnership, and in-city slum redevelopment components have been extended till Dec. 31, 2024. The credit-linked subsidy option, which offered beneficiaries an interest subvention, was not extended beyond March 31, 2022.

Land in such schemes is often allocated at reduced rates for affordable housing projects, making it financially feasible for developers to create housing units at lower costs, said Anuj Sharma, chief operations officer at India Mortgage Guarantee Corp.

"The government is pushing for innovative construction techniques and technologies, reducing construction costs, making housing more viable for the end users," said Sharma. "For example, use of prefabricated materials and efficient construction can speed up the process and lower the expenses."

Mortgage lenders have also been focusing on strengthening their affordable housing loan segment.

PNB Housing Finance, with its offering ‘Roshni’, provides affordable home loans ranging from Rs 5 lakh to Rs 35 lakh. At the end of two quarters—Q4 FY23 and Q1 FY24—the company said it disbursed Rs 365 crore under the Roshni segment.

“Our target average ticket size for the affordable segment is Rs 15-17 lakh ... Expanding our affordable housing loan offering allows us to tap into a growing market ...," Girish Kousgi, managing director and chief executive officer at PNB Housing Finance Ltd., told BQ Prime. "We are focusing on strengthening our distribution network by increasing our presence in tier II and tier III cities.”

“... Defaults are not as high in the home loan segment as other categories ... There are ways to assess eligibility on the collateral side," said Sharma of India Mortgage Guarantee Corp. "The technicalities, and all the legal aspects of the properties are also taken care of, with accurate identification and credit assessment in minimising the risk of loan defaults.”

PNB Housing Finance’s affordable loan scheme includes new-to-credit applicants, with a household income starting at Rs 10,000 a month and having serious intent to pay, said Kousgi.

“To ensure that we address potential risks and uncertainties across our business and portfolios, we have an established comprehensive risk management process which identifies, assesses, measures, monitors, controls, and reports credit risks in an effective manner,” he said.