Close on the heels of the massive budget support for the housing sector by way of the government announcement of a house to each family by the year 2022, the RBI appears to be moving in tandem to accelerate the pace of growth.
By a circular to scheduled banks dated March 5, the central bank has advised that all housing loans up to Rs. 10 lakh be given the benefit of including the cost of stamp duty, registration charges and related documentation cost for arriving at the Loan-To-Value (LTV) Ratio, which is another shot in the arm for the affordable segment. These factors normally will amount to a cost of around 9-10% varying from State to State. The measure comes just a few days after the RBI’s reduction in repo rate by 25 basis points, a step which lead to an upbeat stock market.
Another step underlining positive support is the permission to release upfront the full amount of loan, overriding the age-old principle of releasing loan amounts in instalments according to progress in construction, to projects promoted by government and statutory bodies such as housing corporations/ state bodies engaged in construction. This is without even riders like possession certificate, and electric or water connections.
A major implication of this relaxation will be that houses built/ being built under affordable housing segment and to Low Income Groups will be in great demand as the margin contribution by the borrower is reduced by a fair amount. This will provide substantial relief to economically weaker sections and low income groups.
Normally, housing loans will include cost of land and building. The margin or owner contribution will be 15-20% of the total cost. There are some banks which will include other expenses like rainwater harvesting, solar lighting etc. One bank in the recent past had offered loan for housewarming expenses too. Some others project the market value after construction based on independent valuation certificate from approved valuers for purposes of LTV.
The main factor of any housing loan is the security and the repayment capacity. While all types of actual cost can be included in arriving at the Loan to Value, the income of the borrower/ family members will be the acid test for fixing the EMI. In the case of a housing loan, there will be no surplus generation to repay the loan and the income from employment/avocation can be the main source.
Welcome move The most welcome thing is the change in basic guidelines coming from the RBI, especially to a sector like housing which is not surplus generating. Houses are mostly for own occupation and are not self-supporting. The NPA fear may also be marginal in the affordable segment unlike the luxury segment where the cost will be astronomical.
A clarification regarding eligible ‘document cost’ by specifying charges, like law charges, khatha transfer fee etc., is likely to be critical as some local bodies levy 1% on the cost of registration for the khatha.
