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Rapid urbanisation in recent decades has resulted in a severe shortage of housing and basic services across India and the trend is expected to intensify, with urbanisation estimated to touch 36 percent by 2020, compared with 31 percent in 2011.
Urban stock represents close to a third of the overall housing stock. Yet, as of 2011, over 27 percent of urban residents were living on rent, and most of these units were informal in nature.
Though the housing stock has gone up with an increase in households, a closer look at the condition of these houses and congestion factors shows a wide gap in housing demand-supply, with the shortage estimated at 111 million units in 2017.
Need for a Housing Policy In the past, several schemes were implemented by central and state governments to address the widening gap in housing, which largely emphasised demand-side intervention, thus limiting the benefits to the weaker sections.
In June 2015, the centre launched a mission ‘Housing for All by 2022’, with the aim to construct 20 million houses in the urban region. Accordingly, Pradhan Mantri Awas Yojana – Urban (PMAY-U) was announced in order to address the housing requirement of the urban poor, including slum dwellers.
From the perspective of implementation, PMAY-U has four broad verticals (Slum Rehabilitation, Affordable Housing in Partnership, Subsidy for Beneficiary-led Individual House Construction and Credit-linked Subsidy Scheme), covering both demand-supply interventions. It is done through partnership with government agencies/ private developers on public/ private land. Also, through the extension of credit-linked subsidy scheme (CLSS) to the middle income group (MIG), the coverage of the scheme has widened manifold. In terms of project criteria under the intervention of affordable housing, a housing project needs to construct 35 percent of the houses (carpet area of upto 30 sq mt) for the economically weaker sections (EWS) category. The price discovery of houses for beneficiary will be mostly done by government authorities and transfer of benefits through grants will be done by central and state government/ CLSS.
Though for private developers, PMAY-U is a lucrative opportunity, with the government offering various incentives, such as additional floor space index (FSI), transfer-development rights, free-sale component and land under a host of interventions, they prefer a broader perspective of the segment.
On a broader perspective, implementation is mostly done by private developers on private land and in terms of project criteria, a housing project should use at least 50 percent of the FSI for dwelling units with carpet area of upto 60 sq mt. Unlike PMAY-U, these housing projects are open to buyers from all income brackets and price discovery of houses is completely market driven. Under this, developers are entitled to benefits such as reduced cost of borrowing due to ‘infrastructure status’ and profit-linked benefits under 80IBA in few cases, while, buyers are entitled to benefits such as reduced ticket size apartments and CLSS.
PMAY-U Progress So Far
So far, beneficiary-led construction is the most adopted intervention by the states and union territories, followed by Affordable Housing in Partnership.
Investment commitments of Rs 1.5 lakh crore have been sanctioned under PMAY-U. The top five states in terms of sanctioned investment for affordable housing (Andhra Pradesh, Madhya Pradesh, Maharashtra, Telangana and Tamil Nadu) command 60% share of the overall investments.
Affordable Housing to Remain Focus Area For Developers in the Long Run
Until now, developers have been majorly focusing on the mid-category/luxury/premium housing projects. Against this, end users prefer purchasing homes based on their income bracket which, typically, varies between three to six times the annual household income and this created a wide demand-supply gap. Post budgetary announcement, developers started aligning their new launches to suit buyers’ affordability by reducing the apartment sizes. This is being done either through supply of smaller configuration apartments or by reducing the size of apartments. Also, there are few instances where developers have altered their newly launched projects to comply with the affordable housing criteria.
To provide further impetus to the government’s ambitious ‘Housing for All 2022’ mission, the Ministry of Housing and Urban Poverty Alleviation (MHUPA), in September 2017, announced a public-private partnership (PPP) policy, segregated into eight models, to promote private investment in affordable housing. While the policy aims to provide the most critical resource to the real estate industry, i.e., land, a few models also provide financial resources to builders in the form of Central government assistance, upfront payments, and / or annuity payments.
- By Binaifer Jehani, Director, CRISIL Research