What are affordable home loans and how they impact you

Housing projects: Then and now

For a long time most of us watched as developers launched premium projects one after another. Each one promised better amenities, location and quality than the other. So much so, that supply of flats was soon more than the demand. So, many projects were left with unsold units.

But most of these projects were beyond budget for the common man even if he took a home loan. So a large section of our population was completely neglected.

This picture has been changing rapidly over the past few years.

Affordable housing is the new mantra.

3 Categories were identified under the Pradhan Mantri Awas Yojana last year:

• Economically Weaker Section (EWS) – With family income less than Rs.3 Lakh a year
• Low Income Group (LIG) – With family income less than Rs.6 Lakhs a year
• Middle Income Group (MIG) –  With family income less than 12-18 Lakhs a year

 The Government is working in Private – public partnership for the first two categories. The third category is now the most lucrative segment for developers. So houses that are affordable to the middle income group are the new wave for developers. With the right mix of quality and cost effective methods can attract volume of sales. Higher volume would mean more profits.

What is affordable housing?

An affordable house is one that you can afford. That could mean an expensive or a low cost home. But in the context of this article, we are looking at houses that a majority of people in the middle income group can afford to buy.

Gone are the days when you could sell anything to anyone. In the age of smart phones, news and internet people are more aware of the options. So to drive sales, developers need to offer a house that is affordable and yet of quality.

Essentially a house that would have these features:

• A house that a majority of us can afford to buy at least with a home loan
• It should come with basic amenities
• Should be built with good quality raw materials
• Should be in an accessible location
• Should comply with all regulations of the society, municipality and Government so that you can easily get a home loan or sell the property when you want

The difference between Affordable housing and low cost housing

Low cost housing refers to houses that are built at minimal cost. These are specifically built for EWS and LIG groups. Normally such houses are built by the Government in Public – private partnerships. The profits on these projects are normally very little. The motive is social good rather than earning a profit.

Affordable housing on the other hand simply means houses which most Indians can afford. People in the middle income group want some amenities and they are ready to spend their savings in a high EMI. So while the developer has to maintain low cost on raw material, he can earn some profits in this category. The profit will be especially good when the volume of sales is high.

Priority Sector Lending

In India, housing is considered a priority sector. This is especially so for those in the middle income group and below. A big push to housing and home loans in this segment come from this ruling.

Now, what does this mean to the common man? It means, banks get incentives to offer home loan to the common man. The interest rate of low value home loans is less than other home loans.

What do banks consider priority sector home loans?

RBI has put the following home loans under priority sector category:

• Home loan value up to Rs.35 Lakhs in metro city with population more than 10 lakhs
• Home loan value up to Rs. 25 Lakhs in other places
• Maximum value of the house may be Rs. 45 Lakhs in metro city
• Maximum value of the house may be Rs. 30 Lakhs in other places

Here is the most important impact of this for you:

Home loans are cheaper if:

• If you take a new home loan of value up to Rs.30 lakhs. You can find out the best option for new home loan bank right away.
• If you switch a home loan to another bank with loan outstanding less than Rs.30 lakhs

You can find out how much you can save by switching your home loan from our home loan transfer calculator immediately.

Affordable housing is definitely the next wave of real estate going forward. If you live in a big city, you would be able to buy a house worth Rs.45 Lakhs towards the suburb. In a city like Mumbai however, you may have to increase your budget even more or compromise on space to fit in this budget. But using Pradhan Mantri Awas  Yojana you can make most of this wave.

Those living in smaller towns and Tier II cities can make most of affordable housing and home loans.

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