Building on the middle-class dream

It was expected that Budget would have something for housing sector, the elections precluded those

In the concluding part of a two-part series, Business Standard looks at how the govt is expected to offer sops to raise demand and supply of affordable housing after the elections

To create traction in the ‘Housing for All’ scheme, the government is expected to announce sops for middle-income groups to avail housing loans. This will make real estate companies that have given the partnership programmes for affordable housing a miss till now, get more interested.

An announcement on these lines is expected soon after the results of the elections to the five state assemblies, due on March 11. The Ministry of Housing and Urban Poverty Alleviation (Hupa) has finalised details of the scheme in consultation with the finance ministry but had kept it in abeyance as the model code of conduct had set in from early January. In addition, some benefits the real estate companies want could also be approved. 

Last week, after Union Minister M Venkaiah Naidu who holds charge of both Hupa and urban development ministries, made public his concerns about the lack of investment by the private sector in the government’s flagship scheme to end housing shortage in the country, the Prime Minister’s Office (PMO) swung into action. A meeting to finalise the contours was held in the PMO chaired by Principal Secretary Nripendra Mishra, which was attended by officials from Hupa, the tax department and from the Reserve Bank of India (RBI), along with representatives from the construction sector. 

Despite almost two years having gone by since the Narendra Modi government launched the Housing for All scheme, private sector participation in it has been nil. This is because of several reasons. Chief among those is the asymmetry between the expected cost of building dwelling units for slum-dwellers and low-income group families, and the cost of land. Naidu said there has been no investment by the private sector in the Prime Minister Awas Yojana (PMAY), while the state and the central government has pumped in close to Rs 90,000 crore into the projects. 

Flats that are sold by real estate companies in the big cities cost around Rs 1 crore; but the government expects the companies to sell affordable flats at a range of Rs 12-24 lakh instead. Rajeev Talwar, CEO of DLF, India’s largest construction company by market cap, said it was not possible to provide flats at such prices unless the government absorbed the cost of land within the cities, like Singapore does. The government expects housing projects built by these companies to set apart 35 per cent of the flats for affordable housing for economically weaker sections and the low-income groups. The rest can be sold by the companies at prices they wish to set. To make it possible for the poor families to buy the reserved flats, the government offers them softer interest rates at the rate of 6.5 per cent that translates into a rebate of three per cent and four per cent on loans of up to Rs 9 lakh and Rs 12 lakh. The lower rates are available for a maximum term of 15 years.

While it was expected that Budget 2017-18 would have something to announce for the housing sector, the elections precluded those. On the cards are offers to make housing loans more affordable for those availing it for the first time and some tweaking of the tax rates. The developers also want the government to nudge RBI to reduce the risk weightage on the loans they draw from the banks. The PMO has indicated it is willing to consider it; simultaneously the builders have also pushed for easier compliance terms by the state governments. “There is no need to be imaginative about the building plans. Instead the states should provide a standard template for building such houses,” Talwar said on behalf of the companies. A government official said the companies have also asked for block-wise clearance for the projects instead of insisting on a completion certificate for each unit. These changes would lower the cost of the projects.

The pent-up demand for housing is massive among the middle-class too, which the government hopes to quench through its affordable housing plans. This, in turn, should make the builders bid for more projects. An official said since the demand for premium housing has eased off with a slowdown in the economy, more developers will now find affordable housing a viable business option. A study by Jones Lang Lasalle also notes that demand for affordable housing could rise due to the low inflation environment. “Given the comfort on affordability front as well as benign inflation level, we believe environment is conducive for housing demand to revive once again.” It warns however, about the “ongoing negative influence emanating from a trust deficit (about some developers) which could still be felt for another four-five quarters”.