By Amitabh Kundu* and Arjun Kumar**
Credit Linked Subsidy Scheme (CLSS) is an important vertical under Pradhan Mantri Awas Yojana – Urban (PMAY-U) designed to expand and augment institutional credit through interest subvention to back up the demand of Economically Weaker Section (EWS) and Low Income Group (LIG) for acquisition and construction of a new house including incremental housing. Unlike its other three verticals viz. Slums Redevelopment, Affordable Housing in Partnership and Beneficiary Linked Construction/Expansion that are Centrally Sponsored Scheme, CLSS is a Central Sector Scheme reaching out to beneficiaries directly through primary lending institutions, with National Housing Bank (NHB) and HUDCO at the apex level.
EWS households (annual income up to Rs. 3 lakh) and LIG households (annual income between Rs. 3-6 lakh) seeking housing loans from Banks, and other financing institutions would be eligible for an interest subsidy at the rate of 6.5 % for loan amounts up to Rs. 6 lakh for the maximum tenure period of 20 years. Housing loans above the stipulated loan amount for given income categories will be at non-subsidized rate.
Importantly, CLSS for Middle Income Group (MIG) was announced by the Prime Minister in the address to the nation on December 31, 2016, post demonetization. This component is further categorized into two – MIG-I and MIG-II – for households with annual income between Rs. 6-12 lakh and Rs. 12-18 lakh respectively. The upper limit of the subsidized loan amount under MIG-I is fixed at Rs. 9 lakh with 4 percent interest subvention, the corresponding figures for MIG-II being Rs. 12 lakh and 3 percent. The interest subsidy amount for the subsidized loan amounts of Rs. 6 lakh (at 6.5%), Rs. 9 lakh (at 4%) and Rs. 12 lakh (at 3%) for a period of 20 years work out to be Rs. 2.67 lakh, Rs. 2.35 lakh and Rs. 2.30 lakh, respectively.
The recent Cabinet announcement increased the carpet area in the MIG-I category from the existing 90 square metre (sq.m.) to up to 120 sq.m. and in respect of MIG-II category from the existing 110 sq.m. to up to 150 sq.m., effective from 01.01.2017. The increase in the income limit for loan eligibility and enhancement in carpet area will enable the MIG households to have a wider choice in Developers’ projects, and give a boost to the sale of built flats lying vacant due to the slump in the market.
The total budget estimate allocation of PMAY-U was Rs. 5,075 crore in 2016-17, which has been increased to Rs. 6,043 crore in 2017-18. Almost the entire increase in the budget estimate allocation of Rs. 1,000 crore is proposed for the CLSS for MIG. The NHB would refinance individual housing loans of about Rs. 20,000 crore in 2017-18. As per the recent reports (October, 2017), in CLSS, Rs. 1,292 crore has been released by NHB and HUDCO in 64,752 home loan accounts since its inception. Unfortunately, the breakup for EWS, LIG and MIG categories are not in public domain.
The recent changes in the stipulations of CLSS as mentioned above and opening of a window for middle income housing have understandably come up due to the lukewarm response of the poor and LIG and low off-take of loans. The government has now ensured that loans are given, and repayments are guaranteed by raising the amount of subsidized loan amount per household, relaxing the norms and conditionality, explicitly or implicitly, regarding built-up area, income ceiling, etc.
Understandably, the new measures will spur the house construction activities attracting private and foreign investments, have a multiplier effect on GDP and labor market and benefit the real estate and builder’s lobby and the middle class. What, however, is a matter of serious concern that this will pivot the core pro-poor character, away from the PMAY-U. There is a serious risk that the middle-class will corner much of the subsidies offered through the CLSS with the poor being pushed out, primarily due to the latter’s lack of repayment capacity and failing to meet the documentation and other formal requirements.
It is not a mere coincidence that these announcements have been made when there is a fall in the prices of properties (also circle rates) and land in various cities, along with the interest rates for housing loans. These trends have become even stronger after demonetization. A host of other measures such as the Real Estate (Regulation and Development) Act, 2016, Real Estate Investment Trusts, the Benami Transactions (Prohibition) Amendment Act 2016, higher tax breaks on home loans, the Goods and Services Tax (GST), land related reforms, optimisation of Development Control Rules, rationalisation of the stamp duty and registration charges, streamlining of operational procedures, digitalization, etc. have been launched that would facilitate middle class housing. The Ministry is reaching out to all the developer’s bodies, banks, HFCs and other concerned stakeholders to increase the private sector participation, which is abysmally low under the old stipulations of the PMAY-U.
As per Census 2011, the number of vacant census houses was 11 million, which grew at a whopping rate of 72 % between 2001 and 2011. The rise in the vacant housing in recent past is an outcome of speculative investment by builders, most of which are financed through the formal subsidised system. One wonders why the state, instead of trying to bring down the unrealistically high prices in the housing market through stringent incentives and taxation policies and encouraging massive production of 30 to 60 sq.m. units, should facilitate the private builders to sell off their vacant houses through state subsidy. The poor, who can afford to pay the EMI for a loan up to a maximum limit of Rs. 2 lakh only, even when it is made interest free, have thus disappeared altogether of this housing strategy.
The dismal performance of the earlier similar schemes is suggestive of the fact that they suffer critical structural problems. Instead of addressing the difficulties the EWS and LIG are facing in availing the benefits, especially on the account of non-affordability, complex procedures and documentation requirements, the government has opened the door to MIG in a bid to increase the off-take under the mission and to meet the expenditure targets.
The Technical Group on Urban Housing Shortage, 2012–17 (TG-12) had noted that the households from EWS and LIG account for 56.18 per cent and 39.44 per cent, respectively, of the total estimated urban housing shortage of 18.8 million. Households with monthly income up to Rs. 5,000 are placed in EWS while those with income between Rs. 5,000 and Rs. 10,000 constitute the LIG. As a well-accepted practice, the housing loan is around four times the annual income of the household for a longer tenure (around 15-20 years), considering the fact that not more than 25-30% of the annual income can go towards payment of EMI. Poor households, mostly engaged in informal sector, can, under no circumstances, incur expenditure higher than this. A loan amount of Rs. 3-6 lakh at the subsidized interest rate sanctioned for a period of 15 years would still mean an EMI between Rs. 3,000 – 5,000 per month. Thus, repayment of the loan amount with interest, amounting to more than 50 percent of their earnings, would be a major issue for the poor.
EMI amount more than around Rs. 1,500 at current prices is not affordable for poor if the expenditure pattern as given in NSS is taken into consideration. For the homeless, daily wage earners, migrant workers, and marginalized families, repayment of such loans would be extremely difficult. The allocated funds under the mission may, thus, be spent without the benefits reaching the targeted population. The chances of the targeted intended beneficiaries being missed (both exclusions of intended beneficiaries and inclusion of non-intended beneficiaries) have thus gone up enormously. According to TG-12, 80 % of the housing shortage is on account of congestion – households having large number of persons per room or wherein a married couple shares a room with an adult.
In order to tackle the problem of congestion, the focus needs to be on enhancement of dwelling unit and incremental housing for creating extra space or additional rooms through support from public agencies.
There has been a sharp rise in housing prices over the past one and a half decade, except the last two years, as suggested by the NHB RESIDEX and the quarterly House Price Index, released by the Reserve Bank of India (RBI). The concerned Ministries, as well as the RBI have voiced in different platforms and policy documents the need for regulatory and executive interventions to combat the speculative forces, bring housing within the affordability limits of the EWS and LIG households and carry the massive stock of vacant houses through strong disincentives into the market to reduce the supply constraint. For lowering the loan amount and the EMI, it would be important to bring down the cost of house construction through appropriate research on housing design, land use, technology, building materials, other supply side factors, and environmental sustainability.
*Visiting professor and **visiting fellow with the Institute for Human Development, New Delhi