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Economy Jul 4, 2012

Govt extends 1% home loan subsidy scheme

New Delhi: In a relief to small home loan borrowers, the government will provide interest subsidy of up to Rs 14,912 this fiscal for loan not exceeding Rs 15 lakh.

The cabinet on Tuesday decided to extend by one year the interest subvention scheme of one percent on housing loans up to Rs 15 lakh where the cost of the house does not exceed Rs 25 lakh for 2012-13. This will cost exchequer Rs 400 crore.

Ease on loans. Image courtesy Andrew Middleton

"When interest rates have risen, even one percent relief is a relief for the middle class and lower middle class," Home Minister P Chidambaram told reporters in New Delhi.

The limit of subsidy for an individual borrower would be Rs 14,912 for a loan of Rs 15 lakh and Rs 9,925 for a loan of Rs 10 lakh, he added.

Chidambaram said a large number of people have benefited from the one percent interest subvention and "whoever borrows now will get the benefit of one percent".

Housing demand has fallen sharply due to high interest rate regime since last couple of years and almost all the realty firms are witnessing fall in their profits.

At present, interest rates on home loan varies between 10.5 percent and 13 percent. The country's largest bank SBI is charging 10.75 percent interest on loans up to Rs 30 lakhs.

Reacting to the announcement, the apex realtors' body CREDAI president Lalit Jain said, "The one percent subsidy is too less when the average interest rate on home loan is 12.5 percent."

Jain demanded that the government should offer the home loan to economically weaker section (EWS) and lower income group (LIG) at 7 percent.
Currently, the country faces a housing shortage of about 25 million dwelling units, bulk of which is from EWS and LIG.

In 2011-12, the government had provided Rs 500 crore for the scheme, while this fiscal Rs 400 crore has been provided.

The National Housing Bank (NHB) is the nodal agency for implementing the scheme both for banks and housing finance companies.

The then finance minister Pranab Mukherjee, in this year's Budget, had announced to extend the scheme in this fiscal to promote affordable housing in view of the shortage of housing for low income groups in major cities and towns.

Last year, the government had liberalised the scheme and increased the loan limit to Rs 15 lakh from 10 lakh and the cost of house to Rs 25 lakh from Rs 20 lakh.

PTI

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