On the money

Housing for all by 2022? An ambitious scheme in India is showing early signs of success

Home finance companies are lining up to provide loans under the Pradhan Mantri Awas Yojana.

For many of us the term “affordable housing” might sound hollow in this day and age of overpriced houses that stretch the finances for most of us. Indeed, buying our own home can take a significantly long period of time. However, beyond exorbitantly priced luxury homes in India’s metros, affordable housing is a new wave sweeping India’s real estate sector. Aimed at housing for the masses, the Narendra Modi government’s plans could indeed change the face of home ownership in India.

Ambitious targets by 2022

On June 9, 2014, President Pranab Mukherjee gave a speech to Parliament that had an ambitious target. He said:

“My government is conscious of the fact that our urban infrastructure is under severe stress. Soon, 50 per cent of our population would be residing in urban areas. Taking urbanisation as an opportunity rather than a challenge, the government will build 100 cities focused on specialised domains and equipped with world class amenities. Integrated infrastructure will be rolled out in model towns to focus on cleanliness and sanitation. By the time the nation completes 75 years of its Independence, every family will have a pucca house with water connection, toilet facilities, 24x7 electricity supply and access.”

Affordable housing for the rural sector has been a priority since the launch of the Indira Awas Yojana in the 1980s. Under the current administration, rural housing is covered under the Ministry of Rural Development’s Pradhan Mantri Awas Yojana (Grameen).

Affordable housing for the urban sector was approved by the Union Cabinet in June 2015 and is covered under the Ministry of Housing and Urban Poverty Alleviation. Thus, the urban initiative is now two years old, and on June 26, the ministry sent out a tweet to mark this fact.

Affordable urban housing

As per the tweet, the government has approved investments of Rs 1,10,753 crore in affordable urban housing sector in the last two years. Indeed, since June 2015, on various occasions, the government has backed affordable urban housing.

In his speech on December 31, 2016, Prime Minister Modi announced a slew of measures including interest subvention of 4% for loans up to Rs 9 lakh and 3% for loans up to Rs 12 lakh taken in 2017. The number of houses being built for the poor, under the Pradhan Mantri Awas Yojana in rural areas, was increased by 33% and interest rate subventions were announced for affordable rural housing as well.

The 2017 Union Budget also provided many incentives for the real estate sector. The most important of these incentives was the provision of infrastructure status to affordable housing. This would enable real estate sector players to take loans at lower rates for affordable housing projects. Lower rates of borrowing would help keep costs in check for the real estate builders helping them in keeping affordable housing projects profitable.

A multi-tiered approach

The Prime Minister Awas Yojana has ambitious targets. According to its website, these are:

  • Affordable homes with water connection, toilet facilities, 24x7 electricity supply.
  • Two crore houses to be built across the nation.
  • Targeting the Lower Income Groups and Economically Weaker Section of society, basically the urban poor, by the year 2022.
  • Two million non-slum urban poor households are proposed to be covered under the mission

To achieve these targets, the government is offering generous sops to those seeking to buy an affordable house, mainly in the form of lower interest rates under the Credit Linked Subsidy Scheme. Under this scheme, those who belong to the economically weaker section and lower income group get an interest rate of 6.50% for loans up to Rs 6 lakh, middle income category 1 gets an interest rate of 4% for loans up to Rs 9 lakh, and middle income category 2 gets an interest rate of 3% for loans up to Rs 12 lakh. These interest rates are significantly lower than market rates, which are all above 8%.

Affordable housing on a roll

The affordable housing initiative is aimed at homes with a value of approximately Rs 20 lakh. Homes with these values are typically located on the outskirts of metros and Tier-1 cities. They are aimed at first-time home buyers in the middle to lower income category.

The government’s attempt has met with initial success. Home finance companies are lining up to provide loans under the Pradhan Mantri Awas Yojana and real estate builders are launching projects across cities. A report in the Business Standard on Monday stated that the National Housing Bank – which registers, regulates and supervises housing finance companies – has got six applications in the past six months from entities who want to start new housing finance companies. The news report also quotes various builders launching new projects under affordable housing.

Similarly, an Indian Express report earlier this month states that pure-play affordable housing finance companies have seen their assets under management [the total market value of assets that a financial institution manages] rocket 50% in the past financial year to Rs 23,000 crore as on March 31, 2017, as compared with Rs 15,000 crore as on March 31, 2016.

Positive intent, positive outcomes?

The Pradhan Mantri Awas Yojana has huge targets ahead of it that present huge opportunities as well. There is more than just housing at stake for the government given that the construction sector is a huge generator of employment. Jobs created under the Pradhan Mantri Awas Yojana would be much welcome in a situation where employment appears to be slowing down.

Housing finance companies and real estate builders have already seen a slowdown in the luxury housing segment. Affordable housing could provide a shot in the arm, at least for real estate developers with serious intentions.

Finally, for the middle to lower income categories, the Pradhan Mantri Awas Yojana provides a significant opportunity for their dream to own a home. This dream could well be closer to reality.

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