Govt Announces Massive Real Estate Subsidies; Now Save Rs 2.4 lakh On Your 1st Home Loan!
After PM Modi’s daring and much-needed move to demonetize 86% of currency was announced, many had apprehensions and fear that already battered real estate market in India will further slow down, and purchases would stop. Care Ratings in their report last year said that demand will fall dramatically, making real estate a dead market.
But it seems that Govt. has some other plans.
PM Modi’s Push For Real Estate: Prime Minister Awas Yojana (PMAY)
Under the Prime Minister Awas Yojana (PMAY), Govt. has announced slab-based subsidies which can actually save Rs 2.4 lakh for any first time home owner, if he is earning less than Rs 18 lakh per annum.
This applies for those, who opt for a home loan spanning at least 20 years. As of now, this subsidy is present only for those who are earning less than Rs 6 lakh.
In fact, Govt. has created three slabs for availing this massive subsidy, to ensure that every segment of the society gets benefitted.
Here is the breakdown, assuming a uniform 9% interest on home loan for a period of 20 years:
|Earning of the Individual||Loan Amount Considered||Reduction in EMI||Net Savings on Interest Paid|
|Up to Rs 6 lakh||Rs 6 lakh||Rs 2219||Rs 2,46,625|
|Up to Rs 12 lakh||Rs 9 lakh||Rs 2158||Rs 2,39,843|
|Up to Rs 18 lakh||Rs 12 lakh||Rs 2200||Rs 2,44,468|
Thus, as we can see, net benefit on tax saving is roughly Rs 2.4 lakh, with the reduction in EMI of approximately Rs 2200 for all segments. Besides these subsidies, there already exists Income Tax benefits up to Rs 61,800/ yr, in case the individual falls under 30% tax bracket.
National Housing Bank (NHB) and HUDCO have been roped in to implement and execute this real estate subsidy bonanza, as they have been assigned ‘nodal agencies’ for the same.
But.. Can Real Estate Subsidy Harm Our Economy
There is a segment of real estate experts, who are stating that such huge amount of subsidies can actually harm the Indian economy in the longer run.
The first reason is of course, added expenses for Government, which shall be recovered from taxpayers itself. For instance, under this same Prime Minister Awas Yojana, during the 1st phase, a sum of Rs 310 crore were given as subsidies for 18,000 first-time home buyers belonging to low-income group citizens; and this amount was compensated from the taxpayers.
Now multiply this amount for thousands of additional first-time home buyers, and the amount becomes exponentially large.
The other reason which is being widely listed is mobility of the working class and its impact on the employment rate. As more and more middle-class and lower middle-class citizens start buying a home, they will quit moving to other cities for employment, which will lead to less employment.
Besides, as the tribe of homeowners increase, the rental market will also take a hit, negatively impacting the local economy.
Do you think that PM Modi’s subsidies for home buyers can boost real estate market in India? Or will it lead to more chaos? Do share your views by commenting right here!