Government is trying to revive the housing sector by providing guarantees on Home Loans.

By Abhay Shah, Realty Quarter

A senior finance ministry official said the government is proposing a fund that will provide guarantees to those who would otherwise not be entitled to a housing loan, enabling them to borrow funds to purchase a house. As part of a plan being formulated by the government to assist the housing industry, which is burdened by high debt, stalled projects and unsold homes.

“This aid would help borrowers who are not well-rated and unable to obtain a bank loan,” the representative said. A guarantee could also assist those otherwise eligible for loans to decrease interest rates. The government is also examining the feasibility of a stressed asset fund under the scheme that will assist in completing stalled projects.

A borrower can take the benefits of the proposed fund’s guarantee for a small fee, the official said. This could help people to become eligible for loans without steady income flows and credit history. Traditionally, this segment has relied on the informal credit sector that comes at a high cost.

The credit enhancement fund could bring more buyers to the housing market, which has a high inventory saddled. “Banks will have the comfort of offering loans to the borrower because of the guarantee and this will allow the borrower to access credit,” the official added.

There is a comprehensive package in the works for the housing sector. Finance Minister Nirmala Sitharaman has already discussed the steps needed to revive the sector with representatives from the housing sector as well as the Ministry of Housing and Urban Affairs.

The government is keen to revive the sector, which, in addition to generating employment, has a multiplier effect on other areas such as cement and steel.

Sitharaman said at Chennai that the housing package will come “sooner rather than later”.

The real estate industry and groupings of home buyers suggested setting up a stressed fund to take over incomplete and stalled projects and ensure completion.

The housing industry confronts a drop in demand aggravated by the liquidity-based squeeze that sparked by the default of IL&FS Group’s last year. While government and RBI have taken measures to address the issue of liquidity, risk-aversion has restricted lending.

In addition, the defaults by many builders have rendered buyers cautious and hurting demand. Both the state and RBI have a strong goal of reviving housing and enhancing financing for the industry.

A committee drawn up by the RBI suggested on Monday that loans are standardized and the establishment of a government-sponsored intermediary for developing the home loan securitisation market under the National Housing Bank (NHB). Also suggested the stamp duty exemption for mortgage-backed securitisation by the Market for Housing Finance.