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Housing Sector Reforms

Background
The Union Government has announced the third set of economic measures to revive the economy. The package aims to revive the housing sector as well as boost exports. These decisions follow two previous announcements to encourage private sector investments and bring further stability into the banking system of the country through mergers of public sector banks.

Affordable Housing
The Ministry of Housing and Urban Affairs defines affordable housing on the basis of size, price, affordability, and income.

•For the Economically weaker sections or EWS, an affordable house would mean a unit measuring between 300 and 500 sq ft, priced below Rs 5 lakh and for which a household has to pay Rs 4,000-5,000 in EMI (equated monthly instalments).

•For low-income groups or LIG, it would mean a unit measuring between 500 and 600 sq ft, priced between Rs 7 lakh and Rs 12 lakh for which a household has to pay Rs 5,000-10,000 EMI.

•For mid-income groups, an affordable house shall mean a unit measuring between 600 and 1,200 sq ft, price range between Rs 12 lakh and Rs 50 lakh for which a household has to pay Rs 10,000-30,000 EMI.

Importance of Housing Sector in India
The real estate sector is one of the major job-creating industries. The housing sector also attracts foreign direct investments. Affordable Residential Development for the needy is necessary for further growth and welfare measures of the country.

Current situation and decline in Housing Sector- Reasons
There are several factors which have caused slow down in the real estate housing sector in the country, important among them are:

•Increase in cost of financing and ongoing liquidity crisis in non-banking financial companies.

•Weak sales and huge unsold inventory and price corrections in the inventory

•Complicated and corrupt regulatory mechanism

•Debts build up of publicly traded real estate firms

•Research suggests the real estate transactions involve huge sums of black money.

Steps already taken by the government
For Affordable Housing, an additional deduction up to Rs. 1.5 lakhs for interest paid on loans borrowed up to 31st March 2020, for purchase of house valued up to Rs. 45 lakh.

Reduced EMI for housing loans by directly linking Repo rate to interest rates

Support to NBFCs/HFCs
•More credit support for the purchase of houses, vehicles, consumption goods.

•Additional liquidity support to HFCs Rs. 20,000 Cr by NHB thereby increasing it to Rs. 30,000 Cr.

•Partial Credit Guarantee scheme for purchase of pooled assets of NBFCs/ HFCs up to Rs 1 lakh Cr to be monitored at the highest level in each bank

Establish an organization to provide Credit Enhancement for infrastructure and housing projects

The requirement for creation of a Debenture Redemption Reserve (DRR) of outstanding debentures in respect of listed companies, NBFCs and for HFCs removed.

Pradhan Mantri Awas Yojana – Gramin (PMAY-G) aims to achieve "Housing for All" by 2022:Eligible beneficiaries to be provided 1.95 crore houses with amenities like toilets, electricity and LPG connections during its second phase (2019-20 to 2021-22).

New Measures to boost the Housing Sector
The most important announcement made under new measures is Rs. 20000 crore special window of which Rs. 10000 crore will be funded by the government of India and the rest amount of Rs. 10000 crore to be sourced from private investments to provide last mile funding of stalled housing projects which are not categorized as Non-performing assets or not undergoing National Company Law Tribunal Proceedings.

External Commercial Borrowing Guidelines to be relaxed which will facilitate financing for homebuyers who have eligibility under Pradhan Mantri Awas Yojana.

The Interest Rate on house building advance to be lowered.
Housing Sector Reforms
Housing Sector Reforms
Criticism
The government aims to rescue 3.5 lakh middle-class homebuyers through the newly announced measures. Though the critiques are of the view that the package comes with riders such as exclusion criteria of Non-NPA - Non-NCLT projects only to get the benefits does not include a wholesome package. Further, there is a bias towards affordable housing and there is no clarity over the price of affordable and mid-segment homes. Moreover, the pricing definition of affordable housing needs to be changed according to the cities.


Source: PIB




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