Buying Homes to Get Cheaper For Govt Employees as FM Reduces Interest on House-Building Advance

New Delhi: In a bid to boost the housing sector, Finance Minister Nirmala Sitharaman on Saturday announced reduction in interest rates on house-building advance and linking to 10-year government securities yields.

The move will make such advances cheaper for government employees building houses and hence, expected to boost demand for housing. “Government employees contribute a major component of demand for housing and it will encourage more government employees to buy new houses,” the Finance Ministry said in the press briefing.

What is house-building advance (HBA)?

It is available to central and state government employees for constructing a new house on a plot owned by the employee or jointly with the spouse. The scheme can also be availed for buying a new house or flat.

According to the Ministry of Housing and Urban Affairs’ website, the advance can be taken towards the repayment of bank loan which is taken for the purpose of construction/purchase of new house/flat. However, there are certain conditions that must be fulfilled to migrate to this scheme.

- Only those central government employees will be allowed to take the advance who are purchasing flats from housing boards, development authorities and other statutory or semi-government bodies and from registered builders i.e., registered private builders, architects, house building societies, etc., but not from private individuals.

- Only one advance shall be available to government employee during his/her entire service.

According to the housing ministry’s website, the amount of advance that a government employee is eligible for shall be maximum of the following:

- Thirty-four months basic pay subject to a maximum of Rs 25 lakh only or cost of the house/flat, or the amount according to repaying capacity, whichever is the least for construction/purchase of the new house/flat.

- For expansion of existing house, the amount of HBA will be limited to 34 months basic pay subject to maximum of Rs 10 lakh, or the cost of the expansion, or the amount according to repaying capacity, whichever is the least.

- The amount of the advance shall be restricted to 80 per cent of true cost of the land and construction of house or cost of expansion of living accommodation in the case of construction in rural areas. This can be relaxed and 100% can be sanctioned if the head of the department certifies that the rural area concerned falls within the periphery of town or city.