Shot in the arm for low-cost housing

Owing to the absence of such a fund, developers were so far reluctant to take up low-cost housing. Now with the setting up of this fund, developers need not fear losing the amount even if the loan turns wrong for some reason.

The past few years have seen tremendous economic growth in the country thanks to implementation of some successful anti-poverty programmes. While 93 per cent of the total population was under the deprived category in 1985, this declined to 54 per cent of the total population in 2005 and is expected to further decline to 22 per cent by 2025.

The setting up of the Mortgage Risk Guarantee Fund is another such step in that direction. There is a housing deficit of about 2.5 crore for the economically weaker and lower-income groups, which is growing at the rate of about 3.6 lakh per annum, according to the Ministry of Housing and Urban Poverty Alleviation.

The shortage of affordable housing is reaching critical proportions. It is very important that the government takes initiatives to motivate developers to take up such projects on a priority basis.

Accordingly, in the 2011-12 Budget, the government issued proposals in the housing finance sector, considering the increasing burden on people because of a rise in inflation by way of liberalising the existing scheme of interest subvention of one per cent on housing loans.

Also, existing housing loan limit has been increased to Rs 25 lakh for residential units under priority sector lending, thus lifting the battered realty sector. Demand is expected to rise after such a proposal.

In addition, the provision for the Rural Housing Fund has been scaled to Rs 3,000 crore. It was expected earlier that housing could act as an equilibrium between helping banks increase liquidity and helping citizens cope with inflation.

The major step came towards enhancing the credit-worthiness of economically weaker sections and LIG households by way of setting up  a Mortgage Risk Guarantee Fund to be created under Rajiv Awas Yojana and Central Electronic Registry to prevent frauds involving multiple lending on the same immovable property which is operational now.

This fund for low-income housing will be floated jointly by the Central and State governments with an initial corpus of about Rs 1,000 crore, to act as a catalyst to bridge the gap between supply (builders and lenders) and demand (from low income segment) making it possible for those at the bottom of the pyramid to own a house.

It will be administered by National Housing Bank which is the apex level financial institution that regulates and supervises the housing finance companies and also provides refinance to commercial banks and HFCs in respect of home loans extended by them.

Once the fund becomes operational, banks and HFCs will be encouraged to give home loans up to Rs five lakh to the low-income segment without third party guarantee and without the fear of loans turning bad.