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Affordable housing: Plotting the PPP way

Gujarat has taken the lead in affordable housing projects through the PPP route under the Rajiv Awas Yojana. It has bagged 10 out of 21 approved projects under the Affordable Housing Partnership scheme.

Written by Sandeep Singh | New Delhi | Updated: August 8, 2015 5:35:35 am
public private partnership, PPP model, PPP investment, Affordable housing loans, Housing loans, Rajiv Awas Yojana, slum redevelopment plan, property news, business news, economy news, india news, latest news, top stores, indian express The Centre has till now approved Rs 140 crore or 10 per cent of the total project cost of Rs 1,398 crore. Out of this the government has already released a sum of Rs 55.2 crore for the same. (Source: Illustration CR Sasikumar)

While the government has embarked upon its mission of ‘Housing for All’ by 2022, Gujarat seems to have already taken the lead in terms of developing affordable housing projects through the public-private partnership (PPP) route under the erstwhile Rajiv Awas Yojana. The Centre, under the Affordable Housing Partnership (AHP) scheme, gave approval to 21 projects over the last three years, and Gujarat, with 10 of those projects in its kitty, holds the top position. The other two states — Rajasthan and Karnataka — share the remaining ones. In fact, since the BJP-led NDA government came to power last year, no state, other than Gujarat, has received approvals for development of such projects by the Centre.

In response to a question by P Kumar of AIADMK in the Lok Sabha on Wednesday, Minister of State for Housing and Urban Poverty Alleviation, Babul Supriyo, said that there will be an estimated shortage of 20 million houses in urban areas by 2022 and the government’s ‘Housing for All’ mission aims to provide assistance to states/Union Territories in addressing the housing requirement of the slum dwellers and urban poor through following four verticals:

(i) “In situ” slum redevelopment through private participation using land as resource;

(ii) Credit Linked Subsidy Scheme (CLSS);

(iii) Affordable Housing in Partnership; and

(iv) Subsidy for beneficiary-led individual house construction or enhancement.

urban-chart1Of these verticals, data available for houses built under the AHP shows that over the last three years while no unit in Gujarat reached completion, Rajasthan and Karnataka witnessed a total of 4,968 dwelling units getting completed, of which 3,273 units have already been occupied.

But, in last 14 months Gujarat seems to have taken the lead among all states under the AHP scheme. Within the scheme that envisages private partnerships, of the 24,121 housing units across 21 projects that have been approved, almost 72 per cent or 17,373 housing units are being developed in Gujarat alone. Moreover, Gujarat holds more than 83 per cent of the total project cost.

The Centre has till now approved Rs 140 crore or 10 per cent of the total project cost of Rs 1,398 crore. Out of this the government has already released a sum of Rs 55.2 crore for the same.

Developments over the last one year

Rajasthan and Karnataka got approvals for eight and three projects, respectively, to be developed under the PPP model way back in 2012 (they either did not apply for any fresh project approval under AHP or have not been granted the same by the Centre in the financial year 2014-15). On the other hand Gujarat got approvals for all its 10 projects since May 16, 2014, when Narendra Modi-led BJP got the majority in Lok Sabha.

For the 10 projects in Gujarat that have been estimated to cost Rs 1,167 crore, the Centre has approved a funding of Rs 130 crore (over 11 per cent of the project cost) and has already released Rs 55.2 crore or 40 per cent of the approved amount.

While 17,373 housing units have been approved for development in Gujarat, work is already under progress for 16,151 units.

Importantly, the Central government seems to have raised its contribution for development of dwelling units under the PPP model. While in 2012, the Centre had approved its contribution to projects in Rajasthan and Karnataka at 4.1 per cent and 4.4 per cent of the total cost of those projects, the Centre’s contribution for the projects in Gujarat in the year 2014-15 has jumped to more than 11 per cent.

Is PPP the model the way to go

Experts say that the scheme for affordable urban housing is relevant for states which are more urbanised and that is the reason why Gujarat is witnessing a rise in activity. While higher urbanisation leads to more need for affordable housing units, there are questions being raised on why states like Maharashtra and Tamil Nadu that have high urbanisation are not pursuing it aggressively.

PPP model is certainly a good way to make progress on building large number of houses as government alone cannot meet its target of building 20 million houses by 2022. While it brings the private sector to meet the government’s objective, it is also expected to help revive the real estate sector that is undergoing huge stress. However, industry experts feel that it can only succeed if it is structured in a way that it is viable for private players and there is a reasonable profitability for them in it.

“In urban areas the land cost is very high and so is the development cost of the housing units . So in many cases it makes an affordable housing project unviable for a private a developer. They need to be adequately compensated. In cases where the land is provided by the government it is more successful,” said Subhankar Mitra, head, strategic consulting, JLL India.

He added that in the projects in Gujarat, the land is being provided by the government and there is a fixed compensation for the developers and it is working well.

Another model that is followed with the help of private partnership is the Transfer of Development Rights (TDR). Under this model while the developer constructs an affordable housing project, in lieu of that, he gets the right to develop another parcel of land and then sell it too.

While the concerns on profitability is stopping several private players from entering into development under this policy, the pace of project approvals is rather slow for now and there needs to be push in terms of making such development more viable.

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