If the Budget turned out to be a non-event for the real estate sector except for benefits to Real Estate Investment Trusts (REITs), the Reserve Bank of India last week offered some relief to home buyers, especially those belonging to the low-income category and for houses that may fall in the affordable category or in Tier II and Tier III cities.

In a bid to reduce the burden on buyers purchasing house costing up to Rs 10 lakh, the RBI last week allowed banks to add stamp duty, registration and other documentation charges to the cost of unit in order to calculate the Loan to Value (LTV) ratio.

This comes as a relief to many who find it tough to bear the burden of down payment for home registration and other expenses. Though it may benefit some, industry insiders feel that the RBI should have kept the limit higher as even in Tier II and III cities one would find it difficult to buy a house that is priced under Rs 10 lakh.

In its statement issued last week, RBI said, “It has been brought to our notice that these amounts (registration and documentation) form around 15 per cent of the cost of the house and place a burden on the borrowers from economically weaker sections and low-income groups. With a view to encourage availability of affordable housing to such borrowers, it has been decided that in cases where the cost of the house/dwelling unit does not exceed Rs 10 lakh, banks may add stamp duty, registration and other documentation charges to the cost of the house/dwelling unit for the purpose of calculating LTV ratio,” said RBI.

How you benefit
Banks currently offer a loan of up to 85 per cent on the price of the house, provided the home buyer meets the income eligibility criteria. So, if the cost of your house is Rs 10 lakh, then the maximum loan that a bank can sanction is of Rs 8.5 lakh and the buyer’s own contribution in terms of down payment would stand at Rs 1.5 lakh. But that’s not all. A home buyer also has to pay charges relating to registration and other administrative expenses.

While the registration fee across various states varies between 5 and 8 per cent, the service tax component stands currently at 3.09 per cent (which is set to go up to 3.5 per cent), there are also legal and administrative expenses that may range between Rs 25,000 and Rs 50,000.

So, other than the minimum down-payment of Rs 1.5 lakh , the buyer will also have to pay anywhere between Rs 1.2 lakh and Rs 1.6 lakh on account of registration and administrative charges from his/her own savings which raises the overall contribution to around Rs 3 lakh.

Taking into account the changes brought in by the RBI, if these additional charges of around Rs 1.5 lakh are included in the cost of the house then the total value of the home would rise to around Rs 11.5 lakh and at 85 per cent, home buyers can get a loan of up to Rs 9.78 lakh. This reduces a buyer’s own contribution from Rs 3 lakh earlier to around Rs 1.7 lakh.

Is the limit enough?
At a time when the property prices have jumped significantly and even the RBI has classified loans to individuals up to Rs 25 lakh in metropolitan cities and of Rs 15 lakh in other centres under priority sector, a cap on house purchase of up to Rs 10 lakh to avail the benefit provided seems inadequate.

“While it is a good decision to include registration cost and other documentation charges for the purpose of calculating LTV ratio, home buyers may not be able to take advantage of it as the availability of houses in that price bracket are few in the current market scenario,” said Abhay Kumar, CMD, Griha Pravesh Buildteck.

Even the houses launched under the Haryana Urban Development Authority’s (HUDA) affordable housing policy may not qualify for this benefit. While Raheja Developers has priced the housing units in its ‘Krishna Housing Scheme’ at Sohna between Rs 15 lakh and Rs 24 lakh, Supertech’s ‘Basera’ has the units priced between Rs 12 lakh and Rs 20 lakh.

Relief for allottees in government housing projects
While the RBI sought to make home buying easier for those belonging to the economically weaker sections, it also offered some relief to individuals who have been allotted houses in projects developed by government bodies.

RBI had earlier maintained that disbursal of housing loans sanctioned to individuals should be closely linked to the stages of construction of the housing project and upfront disbursal should not be made in cases of incomplete/under-construction projects. However, when some banks raised the issue that they have not been able to extend home loans to the allottees in projects developed by government bodies, since the payment schedule prescribed by such authorities are not linked to the stages of construction, RBI has relaxed the norms.
“On a review, banks are advised that in cases of projects sponsored by the government/statutory authorities, they may disburse the loans as per the payment stages prescribed by such authorities, even where payments sought from house buyers are not linked to the stages of construction, provided such authorities have no past history of non-completion of projects,” said the RBI.