RBI’s New Definition of Affordable Housing

The Reserve Bank of India has eased the process of long term funds by banks for the purpose of Infrastructure financing. It has conferred the infrastructure status for the budget residential projects, which will result in least credit. This big move is due to the BJP Government policy. The policy promises inexpensive accommodation to all by 2022 but there is still a warning which is such that it will boost black money trades and will just help the unorganized developers who are dealing with hoary economy.

The definition of Affordable Housing has been tweaked by the RBI who has declared that home loans up to Rs 50 Lakh in metros and Rs 40 Lakh in non-metros given by the banks and the proceeds of long term bonds will qualify as home loans.

A clear Picture for the Housing sector:

As per the present routine the housing loans ranging up to Rs 25 Lakhs in the metros and Rs 15 Lakhs in the non-metros are measured as affordable housing loans and come under the propriety sector leading category for banks. The definition has been twisted and such that the housing loans up to Rs 50 Lakh in six metros of Mumbai, Chennai, Kolkata, Delhi, Hyderabad and Bangalore and also up to Rs. 40 Lakh in other hubs have been made a part within this category. This clearly states that the interest rate could come down on loans which are given out of incomes of long term bonds.

Revival of the industry with the new meaning of less costly houses: It is speculated that the new definition of less expensive homes will bring about the half of the existing supply under the screening of reasonable houses mainly in the huge urban centers against the current 10 to 15 percent of the total supply.

The builders have been seeking a lot of attention form the government for a much longer time and duration. Many of the developers were not keen to consider it, as these projects work on a very thin and sheen margin. It is expected that more developers will evaluate the affordable housing option as it goes cheaper and the long term options makes the deal much comfortable.

A breath of relief to the loan borrowers:

As the definition gets redefined there are also chances for the current mortgage lending rates which are presently between 9.95 to 10.5 % may get lowered to 8.45 % for around Rs. 50 Lakh housing loans. Many of the banks are offering loans near the base rate, the impact on interest rates will become limited. Hence, the RBI will also intermittently review this twisted definition of budgeted homes under the magnifying loop of inflation. As per many of the relators this strategic move will lower the interest rates for the affordable housing projects and will supply the developers with the needed help to marshal low-priced finance for these kinds of projects this definitely will result in less prices in the extended term.

It’s a second jackpot for the industry after Budget. This is a win win situation for the realty sector as the finance minister has assigned Rs. 4,000 Crore for the low cost housing schemes while introducing the union budget for the year 2014 to 2015. He has also indicated that there will be a relaxation of FDI norms for the reasonable residential sector. The most important of these tasks is the quick execution of these creativities. It’s a very optimistic step that the government has taken due records of the demand- supply disparity in the housing segments and it still relics to be seen how quick these initiatives will hit the ground in the actual time.

This move is still not applauded by everybody:

An analyst has stated that the RBI move will only encourage the black transaction and help the small and unorganized real estate developers. Many of the realty developers will now ask for a higher black component as against 60 to 40 norms. Most of the small realtors will make out the most from this situation such as the arrangement as the huge and listed companies will be careful in dealing with such complex transactions. On the other hand metros like Delhi, Mumbai will not gain any such benefits from the affordable housing schemes as the majority of the houses are upward of Rs. 1 Crore.