RBI Announces Infrastructure Status for Affordable Housing
The real estate sector had high hopes for a long time that the sector would be given an industrial status. But, like most of the previous budgets, the new government too failed to accredit the sector with an industry status. However, it did provide several sops for the sector that has made the sector happy. Now, realtors have one more reason to smile. The Reserve Bank of India (RBI) has announced an infrastructure status for affordable housing, which will provide several benefits for the affordable housing.
RBI announces infrastructure status
The Modi government, in its first budget, provided a good boost for affordable housing in India through various measures. As a complementary move, the RBI too made an announcement of treating the affordable housing sector as a part of the infrastructure industry on July 16th. The RBI has said that apart from the technical definition of infrastructure, affordable housing is a segment of economy, which is critical importance and requires long term funding.
In line with the government’s intention of making housing affordable for the economic weaker section (EWS), lower income group (LIG) and medium income group (MIG) by providing cheaper credit, the RBI has planned to make it easier for banks to raise long-term resources for financing their long-term loans. By declaring affordable housing a part of infrastructure industry, banks will not have to maintain statutory deposits such as statutory liquidity ratio (SLR) and cash reserve ratio (CRR) with the RBI. There are also several other benefits from this move.
Benefits for affordable housing
1. The biggest advantage by RBI’s announcement is that banks will not have to maintain the mandatory SLR and CRR on the funds raised after selling seven-year government bonds in order to lend it to the infrastructure sector, including affordable housing. Earlier, this was mandatory for the banks due to which, bank lending rates were higher. Due to the new move, bank lending rates will considerably reduce.
2. Moreover, allowing banks for raising long-term funds at lower rates including ECB will allow the government agencies as well as developers involved in affordable housing to increase supply and in turn, reduce the demand-supply gap.
3. The banks will be able to lend the developers of affordable houses under the priority sector lending. This will reduce the capital values of houses as well as boost sales. Also, loans to individuals up to Rs 50 lakh for house values up to Rs 60 lakh in the six major cities, and loans up to Rs 40 lakh for house values up to Rs 50 lakh in other cities will be available under priority lending.
4. This will have a direct benefit to end-buyers. The interest rates and hence EMIs on loans up to Rs 50 lakh on housing values of up to Rs 60 lakh will come down by one percentage point. For example, the EMI on Rs 50 lakh repayable in 20 years will reduce by Rs 39,000 per annum. This, along with the income tax incentives provided by the government, will increase the savings for the general public.
As a result, the government’s focus on affordable housing and the RBI’s announcement together will surely bring smiles on faces of many middle income group people.
