ICRA: Increase in carpet area for MIG beneficiary under PMAY – CLSS to underpin demand for affordable housing in tier-2 and tier-3 cities

New Delhi, June 19, 2018: In a major boost to affordable housing, the government has approved raising the carpet area of dwellings that are eligible for interest subsidy, for MIG beneficiaries, under the Credit Linked Subsidy Scheme (CLSS) of Pradhan Mantri Awas Yojana (Urban). This has been done with a view to further enhance the scope and coverage of the scheme and is expected to boost the supply side. The Ministry of Housing & Urban Affairs has further increased the carpet area for MIG-I to 160 sq. mtr and MIG-II to 200 sq. mtr. The MIG-I beneficiaries are those having annual income of Rs. 6 lakhs to Rs. 12 lakhs and MIG-II beneficiaries are those having annual income of Rs. 12 lakhs to Rs. 18 lakhs. The current relaxation of carpet area is second such revision carried out by the government in the recent times. In November 2017, the government had revised the eligibility criteria of maximum carpet area for MIG, when the maximum carpet area was relaxed under MIG categories, i.e MIG – I and MIG-II, to 120 sq. mtr and 150 sq. mtr from 90 sq. mtr and 110 sq. mtr respectively.

Analysing the impact, Mr. Shubham Jain, Vice President and Sector Head, ICRA Ltd says, “The announcement to increase the carpet area for the MIG beneficiaries under PMAY (CLSS) is a welcome decision. The move not only widens the pool of eligible projects but will also boost the construction activity. We expect the demand to pick-up as has been visible in disbursements to MIG beneficiaries post the earlier such increase in carpet area in November 2017.The traction, however, after this increase, may be largely limited to tier-2 and tier-3 cities as affordability for such large sized units in metros, for the target beneficiaries, may be suspect.”

To be eligible for CLSS scheme, the housing unit being constructed or acquired should be within the size limits specified under the scheme. Moreover, loan amounts taken beyond permitted limits will be at non-subsidized rates. Under the scheme, the net present value (NPV) of the interest subsidy over the loan tenure will be calculated at a discount rate of 9% and paid upfront into the loan account thereby reducing the principal outstanding and the monthly EMIs thereon. The total interest subsidy in each category of beneficiary works out to around Rs. 2.3 lakh assuming that the full eligible loan amount is taken.

Table: PMAY credit-linked subsidy scheme details

Source: ICRA research, Ministry of Housing and Urban Affairs

The decision of increasing the carpet area, apart from widening the coverage, will also augur well for the construction sector. In addition, the move also aligns itself with the recent RBI policy announcement pertaining to the revision in the housing loan limits for Priority Sector lending eligibility. Under the new norms, the housing loan limit for metropolitan centres was increased to Rs. 35 lakhs from the earlier limit of Rs. 28 lakhs and the limit for other centres was increased from Rs. 20 lakhs to Rs. 25 lakhs, provided the total cost of the unit in the metro and other centre was not more than Rs. 45 lakhs and Rs. 30 lakhs respectively. However, due to the perceived high risk to financing low-income housing, and the recent indications, by RBI, of rising delinquencies for the ticket size of up to Rs 2 lakh; ICRA expects the HFCs to take a cautious view towards lending to the segment.

Until November 2017, when the first relaxation in the carpet area was announced, the interest in MIG segment was dismal. However, the CLSS for MIG beneficiaries has witnessed a healthy traction in the recent past. Until June 11, 2018, Rs. 737 crores has been disbursed to 35,204 MIG beneficiaries out of the total disbursement of Rs. 3,627 crores to 167,417 beneficiaries. “Thus, based on the recent pick-up in MIG disbursement post the earlier increase in the carpet area in November 2017, ICRA expects the current decision to raise the carpet area further, for MIG beneficiaries, will have a positive impact on the demand for affordable housing over the medium term.” concludes Mr. Jain.

Corporate Comm India(CCI Newswire)