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Monday, July 16, 2018

Affordable housing push: Extension of benefits a shot in the arm

The Centre’s decision to extend interest subsidy for MIG beneficiaries by 15 months coupled with the announcement of a new public-private partnership policy in affordable housing will yield intended results if the implementation of PMAY goes well, say experts

By: ENS Economic Bureau | New Delhi | Updated: September 23, 2017 6:30:10 am
 pmay, Pradhan Mantri Awas Yojana, affordable housing, middle income group, housing subsidy, indian express Illustration: C R Sasikumar

To push demand for housing, the Central government on Friday announced to extend the interest subsidy benefit for beneficiaries in the middle-income group (MIG) under the Centre’s affordable housing scheme, by another 15-months till March 2019. It is expected to provide a benefit of around Rs 2.6 lakh on home loans taken under the Pradhan Mantri Awas Yojana (PMAY).

The announcement was made by Durga Shanker Mishra, secretary (housing & urban affairs), in Mumbai on Friday. This move to push housing development under the PMAY comes a day after Housing and Urban Affairs minister Hardeep Singh Puri announced a new public-private partnership (PPP) policy to boost private investment in affordable housing that allows extending central funds of up to Rs 2.50 lakh for each house to be built by builders even on private land. While it will open up potential for private investments in affordable housing projects on government landparcels in urban areas, it provides eight PPP options for developers to invest in the segment, the minister said.

Real estate participants and experts though welcomed the move and said that it would push higher participation from the private sector, they raised their concerns on the implementation front. Surendra Hiranandani, chairman and managing director, House of Hiranandani, said: “A major impediment to real estate development in India remains the approval process. The World Bank has ranked India 185th out of 187 countries in the ease of obtaining Construction Permits Index which indicates extreme difficulty in getting requisite permissions. Similarly, legal reforms should be in place to enable title insurance… We hope that the PPP model would clear these issues at the government level.”

A report released by Kotak Institutional Equities said: “Land remains a state subject. The review of FSI (Floor Space Index) and FAR (Floor Area Ratio) norms will be undertaken by state agencies based on existing regulations /infrastructure for respective cities. Such processes have taken long in the past.”

Addressing the ‘Real Estate and Infrastructure Investors Summit’ organised by the National Real Estate Development Council (NAREDCO) in Mumbai on Friday, Mishra said that the decision to extend the benefit for MIG for another 15-months will provide more time for MIG beneficiaries to avail interest subsidy under the PMAY (Urban).

pmay, Pradhan Mantri Awas Yojana, affordable housing, middle income group, housing subsidy, indian express

On December 31, 2016, Prime Minister Narendra Modi had announced that the Credit Linked Subsidy Scheme (CLSS) under PMAY (Urban) will be applicable to MIG till the end of December this year. Now, the subsidy scheme will be available for 15 more months till March 2019.

Under CLSS, MIG beneficiaries with annual income of above Rs 6 lakh and up to Rs 12 lakh get an interest subsidy of four per cent on a 20-year loan component of Rs 9 lakh. Those with annual income exceeding Rs 12 lakh and up to Rs 18 lakh would get interest subsidy of three per cent.

Reiterating the government’s commitment to meet the ‘Housing for All’ target in urban areas by 2022, Mishra urged the private sector to invest in affordable housing as it is being promoted by the government in a “big way” with several incentives and concessions, the release said.

He also assured a 30-member delegation of NAREDCO that the government would look into various issues raised by them in all sincerity and possible interventions would be considered.

The statement issued by NAREDCO said that the delegation raised concerns on various fronts including anomalies in GST rates for completed and underconstruction housing projects, stamp duties being higher and kept outside the purview of GST, scarcity of land, delays in granting construction permits among other issues. The delegation expressed concern over the fact that GST and other taxes account for over one-third of the cost of residential properties.

On Thursday, Puri announced to extend benefits of the policy, available only to construction on government land, also to houses constructed by private developers on private land. He announced two new models for private investments in affordable housing on private lands. One would involve a central assistance of Rs 2.50 lakh per house as interest subsidy on bank loans under the CLSS of PMAY. Another model would be a central assistance of Rs 1.50 lakh per house to be built on private lands in case the beneficiaries do not take bank loans.

A ministry official said that in the two years of the implementation of PMAY, they have not got any proposal from the private sector. “The real estate sector wanted a clarity on whether these components of PMAY which was available for construction of houses on government land could be extended to private lands also. We therefore decided to issue a new policy clarifying that Affordable Housing in Partnership could be carried out either on government or private land. There is a lot of housing stock lying unsold, this would benefit all of those,” he said.

Puri added that in addition to these two models, six more options for promoting affordable housing with private investments on government lands have been evolved after consultations with States, and other stakeholders. Under each of those options, beneficiaries can get central assistance of Rs 1 to Rs 2.50 lakh per house.

Puri also voiced his concern over the private sector’s lack of interest in the creation of affordable housing despite the government recently granting infrastructure status for this segment.

‘Realty sector sees $10-bn investments in 2 years’

The Indian real estate sector has witnessed over $10 billion investments in the past 2 years, which is more than half of the total investments witnessed since 2013 in the sector, according to a KPMG report

– 53% of total investments during 2013-YTD2017 have been recorded over the past 20 months alone. Investors are increasingly moving towards suburban areas and smaller cities

– $7.1 billion institutional investments in 2016, increasing steadily as compared with about $5.2 billion in 2013, driven majorly by private institutional investors

– 80% of total investments between 2016 and YTD-2017 in commercial assets — rent generating leased office, warehouse and retail assets. These have been the most-preferred class for investments in the last couple of years, with office spaces cumulatively attracting $5 billion invested since 2016


– $4.6 bn credit extended by PEs and NBFCs together to developers in 2016, against $1.3 bn extended by banks and have become the preferred capital source for under-construction projects

– Over 90% of the investment deals were made through debt route in 2017

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