PPP Model in Affordable Housing: Clear road map, stakeholders’ involvement necessary to succeed

By combining the strengths of private players with those of the public sector, the challenges of providing affordable housing can be overcome.

Written by A Shankar | Updated: September 16, 2017 2:31 am
Housing for All by 2022, affordable housing, ppp model housing, Public Private Partnerships for Affordable Housing, township policy, housing plans By combining the strengths of private players with those of the public sector, the challenges of providing affordable housing can be overcome. Express Photo

Urbanisation is central to a country’s economy. In India, its rapid pace has given rise to many issues — one of them is housing shortage. To deal with this, the Center and states have adopted the ‘Housing for All by 2022’. Moreover, building by-laws and building codes have been modified, loan disbursals have been eased, and interest subsidies have been provided to reach out to the urban poor.

Though the recent census data highlight that the housing shortage in the country’s urban areas declined from 1.63 million to 0.39 million in 2011, the larger problem still persists. In India, private sector players, including developers and housing finance companies, tended to primarily target housing for the higher income group (HIG), resulting in sustained supply and competition in this segment.

The government is, on the other hand, focused on providing shelter to the poor and economically weaker sections (EWS). The results of these efforts have been largely insufficient. There is a serious dearth of affordable housing to cater to this segment of society.

By combining the strengths of private players with those of the public sector, the challenges of providing affordable housing can be overcome.

Housing shortage

The housing sector is one of the fastest-growing industries in the country, owing to incessant demand. The realty industry is the 3rd-largest contributor to the economy, and the housing sector contributes 85 per cent of the total real estate activity. The urban housing shortage till 2022 stands at 15.97 million units. By government estimates, the shortage in 2012 stood at 18.78 million units, of which, 96.5 per cent (estimated by the end of 2017) is in the LIG and EWS combined.

The current challenges in affordable housing include limited supply of affordable land, high capital costs, affordable housing’s lack of attractiveness for private players, dearth of suitable technology, and lack of clarity & transparency in the system.

The ‘Housing for All by 2022’ focuses

on single-window clearances and various other efforts to create low-cost housing. The Union Budget 2017-18 gave impetus to affordable housing and the infrastructure segment, and the announced tax benefits and proposed changes in the long-term capital gains tax will boost players’ confidence in these projects.

Drawing from global cues

To resolve housing crisis, many developed countries have become proactive with subsidies and incentives for providing housing to the less economically privileged segment:

* In Singapore, 82 per cent of the population resides in social housing.

* In Seoul, the capital of South Korea, older housing stock becomes available to low-income households by redeveloping it in appropriate locations under the concept of inclusive planning.

* In Philippines, a penalty is imposed if land is kept idle for too long instead of making it available for housing development.

* In Spain, floor space index (FSI) incentives have enabled developers to sell affordable units at a 1/3rd price compared to the prevailing market rates.

Recent PPP policies

The Centre recently drafted a new policy on ‘Public Private Partnerships for Affordable Housing’. The new policy has devised various models of PPP to maximise financial gains and moderate associated risks.

The models are prepared for two cases. The first is, for instances, where the government leases the land. The second is when a private developer has to identify the land. The second case is further bifurcated into two scenarios. In the first scenario, development is carried out in partnership (the analytic hierarchy process or AHP system) and in the second, when development is  carried out on the basis of the credit-linked subsidy scheme (CLSS).

Success stories

Though the government is working towards addressing issues such as lack of supply of developable land at reasonable prices, higher construction costs and unsupportive development control norms by taking strategic steps, the policy framework must be strengthened further to stimulate growth and deliver sufficient relief to LIG homebuyers.

Between 2001 and 2006, Maharashtra, Uttar Pradesh, Gujarat and Andhra Pradesh made attempts to formulate township policies which also included provisions for affordable housing.

Since then, there have been many changes and reforms in these policies. For instance, Andhra Pradesh’s latest affordable housing policy suggests various models in which private developers are encouraged via fast-tracked clearances and approvals, FSI incentives, timely payments and the flexibility for developers to determine the sale price of the affordable houses (with approval from the authority). It also suggests a rental housing model wherein rent would be fixed by the government.

In Maharashtra, a special Township Policy was formulated in 2004 to attract private players to cater to the demand for LIG and MIG housing. However, this resulted in only 17 projects in 11 years (2004-2015). Meanwhile, the new ‘Housing Policy  and Affordable Housing Plan’ unveiled in 2015 targets 50,000-1,00,000 affordable houses to be constructed in every township.

Also, ‘in-situ’ slum redevelopment projects with private participation in Ahmedabad, Gujarat, provided 1,592 dwelling units of about 27 sq m carpet area with basic civic infrastructure like water supply, sewerage system and internal road connectivity.

Conclusion

The success of affordable housing  initiatives depends on the proactive involvement of various stakeholders, including private sector players, operating with a clear road map of roles and responsibilities. Innovative PPP models must be explored to yield win–win scenarios for all involved partners and encourage private developers to participate more in this competitive market.

According to the PPP policy, both ownership and rental models backed by an institutional structure should result in the right kind of housing supply to reach its designated end-users effectively. States should have their own township policies earmarking dedicated zones for affordable housing. Incentives in the form of land lease, FSI, reduction in stamp duty and exemption from other associated taxes will significantly reduce project costs.

With the deployment of the Real Estate (Regulation and Development) Act [RERA] 2016, which also focuses on timely completion of projects and adoption of innovative technologies like prefab and pre-cast housing, there is a hope for effectively covering the demand-supply gap. Unlocking older housing stock by redeveloping dilapidated structures and adding them to the overall supply of affordable housing will help in a big way. If the PPP policy is able to regularise, monitor and encompass the all-important principles of inclusiveness, equity, environmental sustainability and transparency, they will certainly succeed.

The writer is national director & head of operations (strategic consulting), JLL India

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