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Home loans for poor get cheaper

india Updated: Jan 06, 2009 00:11 IST
Vikas Pathak
Vikas Pathak
Hindustan Times
Home loans for poor get cheaper

The poor can soon avail of house loans at low interest rates. Close on the heels of public sector banks announcing a lowering of interest rates on house loans up to Rs 5 lakh to 8.5 per cent, the government has decided to provide an additional 5 per cent interest subsidy on loans up to Rs 1 lakh.

A poor person taking a loan of up to Rs 1 lakh from a public sector bank or HUDCO at 8.5 percent interest, as has been announced by public sector banks as part of a new interest regime, will get additional 5 per cent government subsidy. “One has to to pay only 3.5 per cent interest on the loan taken,” said a senior official of the Ministry for Housing and Urban Poverty Alleviation.

The idea behind the rebate is to help those already having a small plot of land — from 200 to 300 square feet for economically weaker sections (EWS) and up to 400 square feet for lower income groups (LIG) — to construct a house on it. This landowning requirement will be crucial in getting the loan.

Out of the funds to be used to finance this interest subsidy, the government plans to earmark 70 per cent for EWS and 30 per cent for LIG.

The economically weaker sections (EWS) are technically those with an income of less than Rs 33,00 a month, and lower income groups those with monthly incomes below Rs 7,300 a month. Here individual rather than family incomes are taken into account.

These populist announcements make sense in an election year, when the vote of the Aam Aadmi is crucial. Moreover, it is believed that the construction sector has an important sector in boosting growth. Construction sector growth has a multiplier effect on GDP growth, as many manufacturing industries are related to the sector.