Real estate companies have welcomed the government's move to ask banks to announce a separate package for borrowers of home loans in the affordable housing segment as part of the overall stimulus plan to revive demand in the economy.
"We welcome various measures announced today by the government in its economic stimulus package. These measures and those announced by the Reserve Bank of India on Saturday will certainly improve credit flow to the realty sector and also stimulate demand for housing. We as developers will respond by offering affordable housing," said Sanjay Chandra, managing director of Unitech Ltd, one of the country's leading real estate developers.
The government said on Sunday that public sector banks would shortly launch a package for home buyers. The government expects lower interest rates offered by the public sector banks to trigger similar moves by the private banks and housing financing companies, thereby spurring the demand for homes.
"This is a good move by the government and a cut in the interest rate will definitely spur some activity in the real estate business. In another four weeks, we should see the difference," said Raminder Grover, CEO, Homebay Residential Pvt Ltd.
According to the government, the contribution of banks to the housing loan market is 20-25 per cent. The package is expected to spur the demand, mainly in smaller towns.
As much as 75 per cent of home loans are in the range of Rs 7-7.5 lakh, according to government data.
"The construction industry is very important as there is a large housing shortage in the country. The sector is a large employer and is also connected to cement and steel industries.
Banks have a major role to play to accelerate the growth of this segment," Planning Commission deputy chairman Montek Singh Ahluwalia said announcing the package.
Earlier, RBI unveiled plans of the Rs 4,000-crore (Rs 40-billion) refinancing facility for the National Housing Bank to ease the liquidity crunch faced by the housing finance companies.
The central bank also included loans of Rs 20 lakhs (Rs 2 million) and below, given by banks to housing finance companies, to be lent to individuals, under the priority lending category.
The measures are indicative of the strong resolve of the government to serve the need for housing in the country, especially for middle- and low-income groups.
Ahluwalia also hinted at an increase in the plan expenditure towards construction of houses for the poor through the Indira Awas Yojana.
According to Rajeev Talwar, group executive director, DLF, the steps announced by the RBI and the government indicates that the sector can be an engine for economic growth as it creates employment and has a multiple effect on industries like steel, cement, ceramic, transportation.
"The government has ultimately realised the problem faced by the second-largest employment generating sector of the country. Once the interest rates touch, say, 8 per cent, there will be a total turnaround in the sector," said Navin M Raheja, managing director, Raheja Developers Pvt Ltd.
As a further measure of support for this sector, public sector banks will shortly announce a package for borrowers of home loans in two categories - up to Rs 500,000 and Rs 500,000-Rs 20 lakhs.
This sector will be kept under a close watch and additional measures would be taken as necessary to promote an accelerated growth trajectory.