Home loan EMIs from your employee provident fund contributions? Modi govt considering measure
India has made great strides in financial sector reforms since the 80s. The progress, however, has been quite slow in channelling household savings to high-yielding asset classes. But, this needs to be seen as a very important part of Narendra Modi Government's mission to make homes affordable. Employee Provident Fund Organisation's (EPFO's) trustees have now decided to consider a proposal to allow the subscribers to pledge their future contribution to buy low-cost homes. This week, the EPFO also decided to raise the maximum insurance benefit from 3.6 lakh to 5.5 lakh.
An expert committee for residential facility for the subscribers recommended that subscribers can pledge their future contributions as equated monthly installments (EMIs) for buying a home. However, this scheme is for low-income individuals who are unable to buy a home in their service period. As a significant portion of household savings now go into buying a home, this should be seen as a major policy proposal. If the coverage is extended to other income groups too, this would allow subscribers to choose between various asset classes.
The Employees' Provident Fund Organisation which was formed in 1952, did not undergo noteworthy reforms till 2010 when the trustees were allowed to invest in joint sector companies in which the Indian government has 26 per cent stake. In 2015, the EPFO decided to invest 5 per cent of the future contributions of subscribers in stocks. Till 2010, funds were invested largely in domestic government bonds. Such schemes discourage fiscal prudence. Homes are more affordable in countries with lower fiscal deficit. This is underestimated, because many countries which have otherwise good government policies have pension-related debt that exceeds the GDP.
Given a choice, many subscribers of EPFO would prefer investing in real estate because domestic government bonds are not a diversified asset class with high yield. The yield from government bonds is low, especially because the value of subscribers' savings is eroded by inflation. Much of the benefits of the employee PF is captured by the relatively affluent. Moreover, annually, the money withdrawn by subscribers per person is comparable to the lifelong PF savings per person. The current tax norms encourage premature withdrawal, but this is not a good recipe for greater household savings. By allowing households to invest in a home, the EPFO could allow greater household savings while making homes more affordable.
Most Popular Articles on PropGuide The Previous Week:
Decoding The Connection Between Urban Planning and Real Estate Prices
PropTiger.com, Godrej Properties Come Together To Spread 'Big Happiness'
Your Dream Home Is Online, Because Guess What, Internet Understands You Better
How Foreign Exchange Norms Influence NRI Investments In India
You Should Buy Property Online. Here Are Numbers That'll Convince You.
This Is A Great Time To Buy Homes. You Shouldn't Wait Any Further.
Would Building Codes Raise The Quality Of Homes In Noida?
How The Bandra-Kurla Complex Can Help Mumbai Decongest