Urban Development Minister M Venkaiah Naidu acknowledged that while both the central and state governments have approved Rs 90,000 crore of investments in affordable housing till the end of January 2017, nothing has come from the private sector.
Speaking at an industry event recently, he said the financial institutions and the central government need to “deliberate in detail why there has been no private sector participation under the Pradhan Mantri Awas Yojana so far and the road ahead.”
Rajeev Talwar, chief executive officer (CEO) of DLF, India’ s largest real estate company by market cap, said Naidu’s assessment was correct. It has sent alarm bells ringing in the government. The Prime Minister’s Office has held meetings with all the parties, including the Reserve Bank of India last week, to find an answer to the challenge.
Government officials concede there is a problem but are hopeful that the target of creating 20 million additional houses in urban areas by 2022 will still come through. The results from the first phase that gets over by March 2017 aren’t encouraging though. While 100 cities have been covered in this phase, which runs from April 2015 to March 2017, the 3,214 housing projects approved for these cities have nothing to show as major private sector investments.
The problem is simple. Affordable housing within cities does not remain affordable, if the cost of land is factored in. If they are built on the outskirts to reduce costs, they find no takers — at least among those who need them the most. The problem is lack of public transport to ferry the people to the city centres for work.
The alternative is for the government to either absorb the cost of land within the cities or develop a strong public transport network to the periphery. Vinayak Chatterjee, chairman of Feedback Infra Private, who also sits on government committees on infrastructure development, prefers development of public transport to make the population move to them. “Giving out cheap parcels of land in city centres to developers will only create scams,” he said.
The Housing for All scheme runs in both urban and rural areas of the country. It has subsumed several earlier ones like the Rajiv Awas Yojana under one umbrella. The Narendra Modi-led government has set a target of providing a pucca house to all households in the country by 2022, as a key element of the social safety net of the people.
There are four ways Hupa offers to build houses. These are slum rehabilitation, affordable housing for those in partnership with real estate companies, providing soft interest rates on loans to home owners for improvement and subsidy for beneficiary-led individual house construction.
The private sector is supposed to chip into the first two options. In the first one, they get additional land as an incentive, while in the next one, named affordable housing in partnership they get to build additional flats to sell in the markets. This has not happened till now.
A perusal of the data provided by each state government for the first phase show each of the projects they have picked up has been financed only through a combination of central and state government funding. In Chhattisgarh for instance, the state government has sought approval for 26 projects under public-private partnerships. It has tendered out the projects but no private sector real estate companies have evinced interest. Maharashtra has bid out six such projects. The investment is again only from the central and state governments. As the table shows, bidding for some of these projects has come only from state government agencies.
A Hupa official said in successive meetings, state governments have told them that developers are demanding more concessions from them to invest in the housing projects. The DLF CEO says these demands are necessary to offset the cost of land. “Unless the states relax the floor area ratio, the floor space index or offer more leeway on transferable development rights, it is difficult for a company to offer to build houses at these costs inside a city.”
Under the rules of Housing for All, state governments have the freedom to relax the rules, but Talwar, who is also the chairman of National Real Estate Development Council, or Naredco, an umbrella self-regulatory body under Hupa, insists these must be congruent across states. This should also include common standards for safety and environment, he said. “The level of support they are demanding from the state governments is massive,” the government official said.
Under the affordable housing projects, developers can build a mix of at least 250 houses for different income categories, ranging from the poor to the high income slabs in one project. The catch is to be eligible for central assistance; at least 35% of the houses in the project should be for the economically weaker sections. The Centre has defined these sections as those with an annual income of not more than Rs 3 lakh. It is Rs 6 lakh for the low income group, though states can play around with these limits. Using a rule of thumb estimate that a home should not cost more than four times the annual income of a family, the price of these houses should cost between Rs 12 lakh and Rs 24 lakh. Talwar agrees it is impossible to build homes at these prices unless the cost of land comes down.
Chatterjee said interest subvention to make loans cheaper for those who need houses or provision of infrastructure status to the builders to get cheaper loans from banks cannot get over the basic problem that cost of land within the cities is impossibly high. An estimate by Sanjoy Chakravorty of Temple University, Philadelphia, estimates the share of land costs in Indian cities range from at least 50% of total housing costs in cities like Surat and Lucknow to 83% in Bengaluru and 86% in Mumbai. “It is better to develop a transport model as part of affordable housing model,” the Feedback Infra chief says. But the Hupa official said this has not yet been built into the model of affordable housing in urban areas.
Otherwise the central and state governments will have to execute redevelopment projects like that at Kidwai Nagar in New Delhi. The Centre owns the land, which frees the developer (in this case public sector, NBCC) of the risk of finding buyers to sell the flats at reasonable prices.
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