The recent decision of Reserve Bank of India to increase the limit of the housing loan under priority sector will definitely help to give a fillip to the “Housing for All by 2022” mission announced by the government. However, while increase in the home loan limit is a welcome development, there is another important aspect which will have a still bigger impact in this segment i.e.the cost of house eligible for loan in metropolitan Centres and other cities, will be increased to Rs.45 lakhs and Rs. 30 lakhs respectively, from Rs.35 lakhs and Rs.25 lakhs earlier, as announced on the June 6 by the RBI.
Using its access to data pertaining to million-plus properties[1] listed for sale and resale, Magicbricks analysis shows that this increase in the limit of property value almost doubles the number of properties which become eligible for loan under Pradhan MantriAwasYojna – Urban (PMAY-U)
The PMAY-U is unique in the sense it does not rely solely on supply under dedicated projects under affordable housing segment. As long as a dwelling unit and buyer meet the criteria under the scheme, the buyer can avail the benefits of the scheme to buy any property or construct one himself. This opens up the options within the existing stock of properties in the market either through the developer or on resale.
Additionally, the Medium Income Group (MIG) housing segment is also being covered in the scheme for the first time. It divides the MIG segment as MIG1 with annual income between Rs.6-12 Lakhs and MIG2 with annual income between Rs.12-18 Lakhs. This is a significant boost to both the consumers and the housing market as it brings a sizable section of homebuyers in India under the scheme and incentivizes them to buy property.
Impact of scheme
Coming to the scheme, the property has to meet the twin criteria of size and price[2]. In order to avail this credit linked subsidy, the carpet area of houses should be up to 60 square metres for EWS and LIG, 120 square metres for MIG1 and 150 square metres for MIG2. As stated earlier, in terms of price, the current limit on the cost of the house in metropolitan centres and other cities, will be increased by the RBI to Rs. 45 lakhs and Rs. 30 lakhs respectively, from Rs. 35 lakhs and Rs. 25 lakhs earlier.
When we apply both these filters to properties available for sale/resale on Magicbricks, we find that the cities with a significant percentage of the stock under the Rs 50 lakhs bracket and smaller average dwelling unit size have the maximum number of properties for which buyers will be able to avail the PMAY-U subsidy.
For example, even though the average size of a property (carpet area) in Mumbai is under 1,000sq.ft, high capital value (Rs/sq.ft) puts the total price beyond the scheme limits. On the other hand, Gurgaon has twin disadvantage of large average property size and high capital value. That is why although the capital value (Rs/sq.ft) in Gurgaon is much lesser than Mumbai, the city still has a lesser percentage of stock applicable under PMAY-U scheme. This is because the apartment sizes in Gurgaon are significantly higher as compared to Mumbai. Which means fewer properties make the cut in terms of size as mandated under the PMAY-U scheme. The bigger size of the property also increases the total price of the property and this further eliminates them from the scheme.
As the graph below shows, cities like Greater Noida and Kolkata, with lower average resale price and property sizes, benefit the most from this scheme.
Existing properties eligible for LIG & MIG category under PMAY(U) in each city
Impact of change in price limit
The announced policy change by the RBI has resulted in a significant addition of eligible stock in the LIG segment in the cities of Chennai, Thane, Pune, and Navi Mumbai. While the average price in these cities is high, increase in the price limit to Rs.45 Lakh brings the peripheral areas of these cities with relatively cheaper stock into the scheme fold and makes the purchase relatively cheaper.
Percentage of existing properties in cities under LIG Segment of PMAY(U) before and after the policy change
However, the biggest impact of the increase in price limit is witnessed in the MIG segment. This increase in price limit opens up significantly large percentage of properties in most cities for homebuyers. In cities with a low average price (Rs/sq.ft) like Noida, Greater Noida, Kolkata, Hyderabad, Ahmedabad, and Ghaziabad, there is an average 96% increase in the eligible properties in MIG segment. In slightly more expensive cities like Bengaluru, Chennai, and Pune, the average increase is more than 300%. Overall, the southern cities of Chennai, Hyderabad, and Bangalore will have around 20% of the city’s stock eligible under the PMAY-U for the mid-income segment buyers
With less than 5% of the total city’s stock eligible under the PMAY-U, the mid-income segment buyers in all the three cities of Mumbai Metropolitan Region, Delhi and Gurgaon will be left out even after the increase in house price limit by the RBI. Given the scale of these cities, the central and state governments for these cities will have to take additional steps to cover these home buyers.
Percentage of existing properties under MIG segment under PMAY(U) before and after the policy change
Conclusion
The recently announced policy change in the house price by the RBI for applicability of PMAY-U scheme allows for a significant increase in the applicable stock across most of the cities, while almost doubling it for them in the MIG segment.
Consequently, a significant portion of both the LIG and MIG segment buyers in Delhi NCR cities of Greater Noida, Ghaziabad, and Noida, along with Chennai and Kolkata, are benefitting from the PMAY-U scheme. Also, a large number of LIG segment buyers in New Delhi, and in Mumbai Metropolitan Region (MMR)cities of Thane, Navi Mumbai, and Mumbai will also benefit under the scheme.
This is a very significant step and is expected to spur real estate activity in the coming quarters in these cities, especially in the MIG segment.
[1] Properties are listed in terms of their super built-up area or built-up area. This has been adjusted to undertake analysis in terms of carpet area.
[2] To study the impact of the scheme, price is as per the latest guideline limit of Rs 45 Lakh.
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