BT Insight: Planning to buy your first home? Use extension to get subsidy under CLSS

Union government's decision to extend the benefit given to middle class Indians through the Credit Linked Subsidy Scheme (CLSS) under Pradhan Mantri Awas Yojana (PMAY) is expected to help many first time homebuyers. The scheme was first introduced for middle class in 2017 and now after extension it will be active till March 31, 2021.

"The extension of the Credit Linked Subsidy Scheme (CLSS) for another year will help homebuyers with subsidy on their home loan and the benefit of lower EMIs for an extended period of time," says Sunil Mishra, MD & CEO of Trespect. The subsidy given under this scheme eases affordability for homebuyers and reduces their interest rate burden.

When entire country is grappling with coronavirus-led economic disruption, this decision is part of series of economic relief measures that the government has announced to fuel consumption demand. "The CLSS scheme was expected to give subsidies to those purchasing in the affordable segment. To some extent, the scheme had helped in boosting sales in 2018-19. A large proportion of purchasers of affordable housing are seen to be self-employed apart from the salaried professionals," says Gulam Zia, Executive Director, Knight Frank India.

Beneficial to middle class

The PMAY was launched to assist extremely vulnerable segment but benefits were extended to middle income families as well. "Majority of homebuyers in Urban cities fall under MIG 1 and MIG2 category as per CLSS scheme as the average starting price of a 2BHK in a residential project is Rs 50 lakh onwards. The relaxation of the income slab and the property size have certainly benefitted a larger audience," Siva Krishnan, MD Residential Services, JLL.

The annual household income is taken as a criteria to determine eligibility to avail subsidy under this scheme. "Combined family income should not cross Rs 18 lakh per annum in the last financial year. Income from equity, bank interest, commercial property and similar taxable income will also be considered," says Krishnan.

As your combined family income goes up, the extent of the subsidy comes down. If the household annual income is less than Rs 6 lakh, the family falls under LIG category. If the income is between Rs 6 lakh to 12 lakh the family belongs to MIG 1 category. For higher annual income up to Rs 18 lakh the category is MIG2.

The maximum subsidy is highest for EWS/LIG category and lowest for MIG 2 category. "The subsidy can neither enhance the loan eligibility nor reduce the initial investment requirement of the client. Immaterial of the loan amount, the maximum benefit someone can avail is between Rs 2.3 lakh and 2.35 lakh (MIG 1 and MIG2)," says Krishnan of JLL.

Type of property matters

To be eligible for subsidy under scheme under different categories, there is restriction of size of the residential property. If you wish to avail subsidy under MIG2 category, the maximum carpet area of your property should not be more than 200 sq. m., while under MIG1, the maximum eligible size is 160 sq. m. and carpet below 60 sq. m. falls in the LIG/EWS category.

"Subsidy is applicable for purchase (new/ resale) / construction/ major renovation/extension work. If the applicant is married, self, spouse or the child should not have any residential project registered on their names. Ownership of plots or land is not considered for exclusion. If single, self or their parents should not have any residential project registered on their names," says Krishnan.

How subsidy is disbursed

At the time of buying or constructing the property, the borrowers has to take loan as per the requirement and then request the government through the lender for applicable subsidy. Once you apply for the subsidy under the scheme, the co-ordination happens between the lender and the government.

"After your loan is disbursed, the lender contacts nodal agencies to initiate the process of claiming interest subsidy. After verification, the interest subsidy will be credited to your loan account and the loan amount will be altered which will be reflected in a reduced EMI amount for you," says Mishra of Trespect.

The longest tenure of the loan allowed under the scheme is 20 years. Your EMI is decided on the basis of tenure and interest rate charged by the lender. However, once you receive the subsidy you can change these. "Once the subsidy is approved, the approved amount will be transferred to the loan account in one go. Then the client have two choice either to reduce the tenure or EMI," says Krishnan of JLL.

Know what you are getting into

Buying or constructing a house needs huge financial resources and can have long-term impact on your life goals. Most experts advise to go for a residential property only when you need it. You should not take a buying call just because there is subsidy. "Firstly, homebuyers must have the financial confidence to service long-term debt that they avail in the form of home loans. This is especially important in times of economic upheavals. Secondly, one must understand their edibility for the CLSS scheme before embarking on application for the same. Thirdly, choosing the eligible property for which the scheme can be granted under the PMAY scheme," says Zia of Knight Frank India.

You should be prepared for the long waiting period for the subsidy to finally be disbursed. You may also need to do the follow-up through your lender. "Though it is a beneficial scheme, clients can't make their purchase decisions based on the scheme because there is no mechanism for a client to get confirmation for the subsidy before he/she invests in the property. So the eligible clients consider it as a luck if at all they receive the refund after three to four months from their purchase date," says Krishnan of JLL.