Urban housing fund expected to go live in a month

The urban housing fund that Finance Minister P Chidambaram announced in the Budget is expected to start functioning in a month. He had proposed to allocate Rs 2,000 crore to the National Housing Bank (NHB) for starting it. R V Verma, chairman, said the fund would be used to refinance banks and housing finance companies for loans given to borrowers in the lower- and middle-income segment.

"This is essentially for affordable housing projects," he said. Loans up to Rs 10 lakh are proposed to be refinanced under the scheme. But, the final details will be worked out after consulting the Reserve Bank of India, he added.

NHB expects this to incentivise builders to come up with affordable housing projects for the lower income group. Verma said the affordable housing segment is already picking up and the fund could further improve prospects for the sector.

KPMG, in a December 2012 report, noted: "Affordable housing development continues to be a challenging proposition for developers and further policies need to be formulated by the government to encourage greater participation from the private sector in the form of technological solutions, project financing and project delivery."

This scheme is likely to have more impact in Tier-II and Tier-III cities, where property prices are low. However, NHB expects the fund to help borrowers under government-run schemes such as slum rehabilitation in metro cities. "It (urban housing fund) will provide an impetus to affordable housing and make liquidity available to the banks and HFCs to lend to this segment, giving the urban lower-income group the required capital to purchase a house in urban areas," said Monish Shah, senior director, Deloitte in India.

In the last Budget, the government had announced external commercial borrowing window for HFCs to lend to affordable housing projects.