News Analysis

Extension of CLSS date unlikely to spur demand for property loans

Bavadharini KS, BL Research Bureau | Updated on May 14, 2020

The Centre on Thursday announced the extension for availing loan under affordable housing Credit Linked Subsidy Scheme (CLSS) till March 2021.

However, given the ongoing lockdown, the resultant job losses, income reduction and so on, it is doubtful if the extension of the CLSS will spur people to take property loans.

Through this scheme, the Centre provides direct subsidy on home loans taken by urban buyers of affordable homes, with incomes below specific thresholds. The benefits are targeted at individuals from economically weaker sections (EWS), the lower income group (LIG) and the middle income group (MIG). The CLSS for the middle income group covers two income segments with annual income of ₹6 lakh to ₹12 lakh (MIG I) and ₹12 lakh to ₹18 lakh (MIG II).

This extension is offered for individuals falling under both MIG categories (₹6-18 lakh per annum). According to a Rajya Sabha response in December 2019, 8,02,732 households have availed themselves of CLSS subsidy benefits since 2016, amounting to a subsidy amount of ₹18,358 crore.

The real estate sector had been reeling under pressure due to high prices and delayed project deliveries in the last few years. In order to ensure affordable housing for all various schemes were introduced by the Centre, including CLSS.

Thus, people purchasing a new affordable houses, under CLSS, can get interest concessions of 3-4 per cent on the amount borrowed, subject to some conditions with maximum of ₹2.3-2.35 lakh per beneficiary.

But it is doubtful if extension of the CLSS for MIG will help spur demand for property, steel, cement etc, as the Finance Minister had stated. With most middle income households reeling under pay cuts, job losses and tight liquidity, discretionary spending is being postponed by all. It is doubtful if there will be any takers for a large ticket purchase such as a property, when the economic outlook is so uncertain.

Two, small businesses are also under considerable stress with their cash flows evaporating and many of them struggling to repay existing loans. Demand for affordable houses from employees of this sector is likely to be negligible.

Also, data on those who have availed the moratoriums on term loans or those who have withdrawn from their EPF balances shows that people are scrounging to get their hands on whatever cash they can. Luring people with lower interest rates to buy houses is going to be an uphill task in such conditions.

Lack of demand is also visible in the unsold inventory numbers. According to Anarock, a real estate consultant, there are about 81,300 units unsold in top seven cities (including Delhi, Mumbai, Bengaluru, Chennai) in the country of which 35 per cent are in the affordable housing segment.

Published on May 14, 2020

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