Can Pradhan Mantri Awas Yojana really solve urban India’s housing crisis?

For the past three years, the Bharatiya Janata Party government has been glorifying its promise of “housing for all by 2022”. With the 2019 general election drawing near, it has grown more vocal in hailing the success of the scheme, officially called Pradhan Mantri Awas Yojana.

At his rallies in the past few months, Prime Minister Narendra Modi has repeatedly claimed that more than a crore houses have already been built and handed over to beneficiaries in villages while 54 lakh houses have been approved for construction in cities. Data available with the Ministry of Housing and Urban Affairs shows that till August, 53.7 lakh houses were sanctioned under the scheme’s urban component, of which 8.3 lakh have been built. The government has given over Rs 78,000 crore for states to build urban homes.

However, in a dense metropolis such as Mumbai, where real estate is notoriously expensive, affordable housing projects under the scheme seem to be restricted to suburbs and satellite towns far from the city. Can Pradhan Mantri Awas Yojana then really serve as a solution to the affordable housing crisis in Indian cities?

While real estate developers are largely optimistic, some fear the workforce of metropolitan cities will be pushed to the outskirts, away from their workplaces.

The four components

The scheme’s predecessor – Indira Awas Yojana, launched by the Congress in the 1980s – gave the rural poor a cash incentive of Rs 70,000 to build a home. The new scheme offers monetary subsidies of Rs 1.2 lakh to Rs 1.3 lakh for constructing rural houses and Rs 1.3 lakh to Rs 2.6 lakh for urban houses. It is intended for low-income and middle-income people who have never owned a home.

The urban component of Pradhan Mantri Awas Yojana has four verticals. The first is in situ slum rehabilitation, which allows private builders to redevelop slums and, on fulfiling certain conditions, avail of subsidies from the state government for each housing unit built.

Maharashtra already has an active Slum Redevelopment Authority and the houses built by it are now being clubbed with those constructed under the prime minister’s scheme. A housing department official said the state has approved the construction of 2.2 lakh housing units under various slum rehabilitation projects in the last three years. However, the official added, the state will find it “very difficult” to compile data on the completed projects. Since the Slum Redevelopment Authority’s projects are meant to provide free housing for slum dwellers, Maharashtra has not needed any Pradhan Mantri Awas Yojana funds to provide subsidies under this vertical.

Another vertical offers subsidies to families that want to build their own homes on private land. It is not very popular in Maharashtra given the scarcity of private land in urban areas. The state has approved just 43,408 housing units under this vertical.

The third vertical is credit-linked subsidy. A first-time home buyer can avail of a home loan subsidy if they have an annual household income of less than Rs 18 lakh. Once an eligible buyer’s loan application is approved, the central government pays the subsidy directly to the bank in question, easing the pressure of repayment on the buyer. The subsidy is worth Rs 2.6 lakh for Economically Weaker Sections (families with annual income of up to Rs 3 lakh) and Low Income Groups (income of Rs 3 lakh to Rs 6 lakh). For Middle Income Groups, the subsidy is Rs 2.35 lakh for those with a family income of Rs 6 lakh to Rs 12 lakh and it is Rs 2.3 lakh for those with an annual income of Rs 12 lakh to Rs 18 lakh.

A senior official at the National Real Estate Development Council, or Naredco, which functions under the Union housing ministry, said credit-linked subsidies are perhaps the most popular of the scheme’s verticals nationally. While officials in Maharashtra have seen more of low-income applicants avail of credit-linked subsidies, Naredco said middle-income groups are the biggest beneficiaries. “People from low-income groups, like auto drivers and small businessmen, are making good use of this scheme, but people in middle-income groups are using it the best,” said RR Singh, director general of Naredco. “Middle-income groups have more resources at their command and are in a better position to save money and get loans from banks.”

Scroll.in contacted the National Housing Bank, one of the central bodies providing funds for credit-linked subsidies, to ascertain the popularity of this vertical among various income categories and the total number of beneficiaries. The bank is yet to respond as are officials from the housing ministry. This story will be updated if and when they do.

Affordable housing dream

The fourth vertical is affordable housing built by the government on its own land or land owned by urban local bodies. Eligible first-time buyers can avail a subsidy of Rs 2.5 lakh for a housing unit bought in such a housing project.

In Maharashtra, affordable urban housing is the most popular of Pradhan Mantri Awas Yojana’s verticals, with more than 2.4 lakh housing units approved for construction. None of the projects have been completed yet, however. According to the housing department official, not much by way of subsidies have been disbursed either. “The first instalment of the subsidy is given only after construction reaches plinth level, and that has not happened at many projects yet,” said the official who asked not to be named.

The state has sought to boost this component of the prime minister’s scheme by launching a separate public-private partnership model of affordable housing in January. It is in accordance with a central government policy on such partnerships for affordable housing, introduced in September 2017, which allows states to flesh out the details of their own models.

“It is a very popular scheme and a lot of major builders are diverting into affordable housing now instead of just high-income housing,” said Manoj Shroff, vice president of the Maharashtra Chamber of Housing Industry.

Under Maharashtra’s model, a private landowner can approach the state’s housing board to jointly undertake affordable housing projects on privately-owned land. The eligibility of a proposed project is determined by a detailed marking system with 10 parameters such as proximity to a main road, school, hospital and transport system. Once a project is approved, the developer can avail of subsidies worth Rs 2.5 lakh per housing unit, paid in instalments at different stages of construction. After completion, the developer can sell half the housing units on the open market while the rest must be sold at the government’s ready reckoner rates to first-time home buyers from economically weaker sections or low-income groups. The subsidy availed of by the developer is passed on to the buyer at this stage as the housing unit is priced at Rs 2.5 lakh less than the ready reckoner rate.

“Finally, the government has managed a scheme that is customer-centric and also executable by developers,” said Rohit Poddar, managing director of Poddar Housing and Development, a real estate company that has approached the housing board with proposals for four affordable housing projects under the new model. Two projects in Badlapur, a town in the Mumbai Metropolitan Region, have already been approved while one in Kalyan and another on the outskirts of Pune city are in the process of being sanctioned. Together, the four projects are set to create 35,000 housing units, half of which will be sold at subsidised rates.

According to Poddar, Pradhan Mantri Awas Yojana is the only scheme in the “history of India” that is actually trying to solve the affordable housing problem in cities. “The government is giving up revenue and giving out money from its own pocket,” he said. “Affordable housing is not going to bring bumper profits for developers, but we can make a reasonable profit if we get good volume.”

Will the scheme work?

Though developers are enthusiastic about Pradhan Mantri Awas Yojana in urban areas, they cannot help pointing out two major drawbacks in its implementation. One is the time it takes to get projects approved. Under the public-private partnership model, Poddar claimed approving affordable housing projects can take four to six months. “There is more paperwork required than for any other approval process,” he said.

The second drawback is that in bigger metros it appears affordable housing projects can only be built on the outskirts of the city, far away from most people’s workplaces. “People often say affordable housing is not about location but actually location is even more important for such housing,” said Anita Arjundas, managing director of the real estate firm Mahindra Lifespaces. People take decisions to purchase homes based on travel time to workplaces, social infrastructure and affordability, Arjundas added. However, when housing is unaffordable in core city areas, people are forced to either travel long distances from suburbs or live in compromised, slum-like conditions within the city. Mahindra Lifespaces has launched three affordable housing projects under Pradhan Mantri Awas Yojana in the satellite towns of Boisar and Palghar in the Mumbai Metropolitan Region, and in Avadi in Chennai.

Rajeev Jain, director of the real estate firm Nirmal Lifestyle, agreed that the scheme will help boost affordable housing, but in satellite towns. “The prices in the city are still quite high,” he said. “Even if we build smaller houses, the cost in the city would be close to Rs 1 crore, and in the outskirts, the same flat would cost Rs 35 lakh.”

Jain’s company is building mixed-use housing projects in Mulund, a suburb north of Mumbai, and in the town of Kalyan. The projects are not under Pradhan Mantri Awas Yojana, but Jain is looking to get into the scheme through a partnership with the state government.

Arjundas said both these drawbacks are structural inefficiencies that need to be fixed to make the implementation of Pradhan Mantri Awas Yojana more successful. “So far, the government has successfully focused on fiscal incentives, by offering subsidies to customers and developers,” she explained. “But the question now is how do you make land available for affordable housing nearer to the city? How do you standardise development control rules, grant faster approvals and provide adequate last mile infrastructure and transportation? In order to create significant housing supply in the next two to four years, these structural inefficiencies should be looked into.”

But PK Das, an urban planner in Mumbai, does not believe the prime minister’s scheme will succeed in creating substantial affordable housing in urban areas. He claimed that building affordable housing under the public-private partnership model ultimately amounts to giving “freebies” to builders. “The builders buy private land at low rates in faraway places like Panvel and get cash subsidies and other concessions to build affordable homes,” he explained. “And they still get to sell 50% of the homes at market rates. Anyway, people will not buy homes so far away if they work in the city. So, it is speculative investment on the part of the government.”