RBI Revises Affordable Housing Loan Limits, Giving a Boost to Pradhan Mantri Awas Yojana

Published Date - 08 June 2018 03:36:16 Updated Date - 08 June 2018 03:36:55

The affordable housing segment will get a boost with the RBI on Wednesday raising the loan limits under priority sector lending (PSL), and the government deciding to use surplus land of sick PSUs for construction of such dwelling units. Now people can avail home loans upto Rs. 35 lakh in metropolitan areas (with population of 10 lakh or above) and Rs. 25 lakh in other areas for Affordable Housing. The new revised limit will give a much needed boost to Pradhan Mantri Awas Yojana (PMAY), a flagship housing scheme of central government.

The overall cost of the dwelling unit in the metropolitan centre (with population of ten lakh and above) and at other centres does not exceed Rs 45 lakh and Rs 30 lakh, respectively. Loans given under PSL are less expansive than those provide by the banks in their ordinary course.

RBI further said a circular in this regard will be issued by the month end.

Further, home buyers would be able to invoke Section 7 of the IBC against errant developers. Section 7 allows financial creditors to file application seeking insolvency resolution process.

The move also comes at a time when many home buyers are facing hardships on account of delayed and incomplete real estate projects.

Earlier in the day, the Union Cabinet approved revised guidelines on time bound closure of sick and loss making central public sector enterprises and disposal of their movable and immovable assets.

The guidelines accord first priority for utilisation of available land parcels of CPSEs under closure for affordable housing as per the relevant guidelines of Ministry of Housing and Urban Affairs.

Meanwhile, the RBI has red flagged small ticket housing loans and hinted of policy response to check the rising NPA in the segment.

Positive Impacts of RBI Revised Home Loan Limits

Monetary Policy Committee of RBI has hiked the repo rates by 25 bps and will consistently track the retail price levels. Here are some of the positive impacts of this decision:
Housing Limits

For Homebuyers in Metropolitan Areas

Housing Loan Limits for PSL Eligibility is now increased from Rs. 28 Lakh to Rs. 35 Lakh in metropolitan areas for Affordable Housing Scheme under PMAY. These Loans will qualify for the Priority Sector Lending. For this increased limit, the precondition is that the overall cost of the dwelling unit must not exceed Rs. 45 lakh.

For Homebuyers in Other Areas

Home Loan Limits in all other areas is also hiked from Rs. 20 lakh to Rs. 28 lakh. The precondition is that the total cost of residential unit must not exceed Rs. 30 lakhs.

The primary objective is to give a push to the potential EWS / LIG homebuyers and thus to the Real Estate Sector which will lead to the overall economic development of the country.

Negative Impacts of RBI New Housing Limits under PMAY

This increase in the repo rate and reverse repo rate is done for the first time after January 2014. A few Commercial Banks have already raised their Marginal Cost of Funds Based Lending Rates (MCLR). The negative impacts for this new policy are described below:

  • This might proves to impact the affordable housing in a negative way as the Home Loan Interest Rates might increase.
  • This decision is balanced in the way that the actual EMI will not get changed significantly even after the revision in the interest rates.
  • Real Estate Industry was expecting that there should be a reduction in the repo rate by RBI. This hike may lead to suppressed growth of the Real Estate Sector.

However it is important to note that, RBI New Policy will not have any significant negative implications for PMAY Beneficiaries. There will be no additional borrowing costs for PM Awas Yojana Home buyers. Thus, there are both pros and cons of this decision, but RBI assures that the positive impacts of this decision will boost the “Housing For All by 2022” – PMAY Scheme.


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