Affordable housing gets a boost; Fast tracking approval process need of the hour

The government’s recent announcement of public private partnership policy to promote investment in affordable housing by giving incentives to private developers augers well with its mission to provide Housing for all 2022. The plan - segregated into eight models, entails extending central assistance of up to Rs 2.50 lakh per house to be built by private builders even on private lands. Read On ..

The “Housing for all 2022’ mission was approved by Prime Minister Narendra Modi in June 2015.

At a time when the overall economic growth has slowed down, housing is one sector that can provide impetus to growth, given that there is huge demand for it, particularly affordable housing - a sector which is having interest rate incentives too. One of the key inputs to the housing sector is land and fast tracking the approval process is the need of the hour.

So, the newly announced PPP policy aims to provide the most critical resource to the real estate industry - land, few models also provide financial resources to the builders, in the form of central assistance, upfront payment, and / or annuity payment. Hardeep Puri, the minister of housing and urban affairs introduced eight PPP options for the private sector to invest in affordable housing segment.

The eight PPP models aimed at tapping private and public lands for affordable housing are:

Private investment in private land:

• 1. Extension of Credit Linked Subsidy Scheme (CLSS) to affordable housing projects
• 2. Central assistance of Rs 1.50 lakh per house

Private investment in government land:

• 3. Design, build and transfer model: Developer to handover built units to public authorities
• 4. Cross-subsidised model: Cross-subsidising cost of affordable project from revenue from high-end house or commercial development
• 5. Annuity-based subsidised housing: Deferred annuity payments by the government
• 6. Annuity-cum-capital grant-based housing: Share of project cost as upfront payment plus deferred annuity payment by the government
• 7. Direct relationship ownership housing: Promoters will directly deal with buyers and recover cost
• 8. Direct relationship rental housing: Recovery of cost by builders is through rental income from houses built on government land

Under models 3-8, beneficiaries, identified as per the norms of the Pradhan Mantri Awas Yojana (Urban), can avail central assistance of Rs 1-2.5 lakh per house.

“Developers have been cautious in taking on affordable housing projects, mainly on account of stringent cost and time schedules. Therefore, the ‘low margin-high volume’ affordable housing projects require stricter adherence to project management, construction progress and project quality,” a report by rating agency Crisil said.

The rating agency said, of the eight PPP models, developers could find the three models attractive on account of the relatively high returns despite the higher risks associated with the models. These models are - Extension of Credit Linked Subsidy Scheme (CLSS) to affordable housing projects, Central assistance of Rs 1.50 lakh per house, Cross-subsidised model.

“In fact, this policy has the potential to change the way the industry operates. At present, many renowned developers use their brand to market their projects, and outsource construction - the core of real estate - to engineering, procurement and construction (EPC) companies,” the report said.

While welcoming the PPP policy, real estate developers said the success of the scheme will depend on proactive involvement of all stakeholders with a clear roadmap of roles and responsibility.

“Regulations must be streamlined and made more effective to achieve the desired results. We need to remember that deregulation will be the key to the success of various government initiatives. A major impediment to real estate development in India remains the approval process,” said Surendra Hiranandani, Chairman & MD, House of Hiranandani.

Citing a World Bank report which ranked India 185 out of 187 countries in Ease of obtaining Construction Permits Index which indicates extreme difficulty in getting requisite permissions, Mr Hiranandani said fast tracking the approval process is crucial.

“The housing sector is one of the fastest-growing industries in the country, owing to incessant demand. Even though the demand for affordable housing is humongous, there are multiple concerns owing to which developers are hesitant to enter into this segment. The execution till now has been excruciatingly slow and its progress will depend on ramping up existing urban infrastructure, fast tracking approval processes and targeting the actual beneficiaries. This concept seems to be a lucid solution to the prevailing housing woes, but its execution is intricate owing to the lack of clear policy framework to meet this ambitious target, unavailability of urban land at reasonable prices, rising costs of construction, high fees and taxes, regulatory issues and unfavorable development norms,” Mr Hiranandani said.

He said it is important to remove these bottlenecks to achieve the desired growth, so that the dream of our Prime Minister can be fulfilled by 2022.

- TradeBriefs Bureau - 

Introducing TradeBriefs SME - Print edition - Subscribe Now! | Sample copy