For the perfect partnership in affordable housing

The constant search for livelihood and better living conditions has been attracting population rapidly over the years to migrate from rural to urban locations. This inward migration may play a direct role in contributing to the country's GDP, but it has also led to a cause for concern. This new socio-economic category of urban poor is facing a housing shortage.

The key obstacles faced by sector to provide for affordable projects for this segment are:

• Cost of land

• Construction and operating inefficiency

• Lack of access to low-cost financing

The effective solution to the above issues lies with both the governing authorities as well as private players. The fundamental idea behind Public Private Partnership (PPP) is to combine the strengths of the private sector with those of the public sector in order to overcome challenges faced by affordable housing, and achieve superior outcomes in the process.

There are limitations to directing privately owned land to affordable housing, keeping in mind the cost involved. The PPP model is thus required to incentivise utilisation of privately owned land as well as facilitate access to government land. The PPP model for affordable housing thus carries six generic PPP structures constituted for projects on government land and two models for privately owned lands.

Under the models based on government land, here are six main categories of housing:

Government Land-based Subsidised Housing (GLSH)

The public authority provides land to the selected private developer and provides for compensation on the satisfactory completion and handing over of the units, as per prescribed standards, cost and time.

Mixed Development Cross-subsidised Housing (MDCH)

The private developer will be allowed to build and sell high-end housing on a portion of the government land allotted. Developers can also utilise the entire land made available by the government for high-end housing in exchange for providing affordable housing at another location. Developers can also be provided with higher floor area ratio (FAR), transfer of development rights (TDR) as well as fast-track clearances for undertaking the development of high-end housing. In exchange for all this value creation, the private developer will be required to provide affordable housing free of cost.

Annuity-Based Subsidised Housing (ABSH)

This model enables developers to receive revenue from the government in the form of regular annuity payments for a particular period of time (up to 10 years) instead of a lump sum amount at the time of handover. It also requires the developer to maintain the assets during this period.

Annuity cum capital Grant-based Subsidised Housing (AGSH)

This model works similar to ABSH except for a significant proportion of project cost (40-50%) is paid to the private developer during the construction phase itself. The remaining amount is paid to the developer as an annuity for up to 10 years after the successful completion of the project. The developer will continue to maintain the assets during this period.

Direct Relationship Ownership Housing (DROH)

This model acts similar to GLSH except the allottee would be required to make payments towards the cost of the housing unit directly to the developer. The type of construction allowed under this model would only be of economically weaker section (EWS) and lower income group (LIG) units.

Direct Relationship Rental Housing (DRRH)

Designed to be similar to DROH, this model requires the allottee to make rental payments towards the usage of the housing unit directly to the developer, whereas these units continue to be owned by the developers.

For development utilising the private land, the credit-linked subsidy scheme allows for an interest subsidy for the allottees,  whereas under the affordable housing in partnership (AHP) scheme, the public authority shall fix the cost of the dwelling unit.

In spite of the many benefits the above models project for private developers, there are still obstacles facing those who wish to aggressively foray into the value home segment. For example, the car parking requirement as per zoning regulations for Bengaluru insists on one car park for every two units (when units are below 50 sq mt), additional 10% as visitor car park and the size of the car park to be 5.5 mt x 2.5 mt.

Assuming a one-acre property with a road approach of 40 ft and applicable floor space index (FSI) of 2.25, the developer would be able to construct 98,000 sq ft, which translates to about 218 homes, necessitating the provision of 120 car parks. However, most of the consumers in this segment will not own cars and the ones who do own cars, surely will not own cars that require 5.5 mt x 2.5 mt size.

The current car park requirements necessitate the provision of a basement in addition to ground-level parking, thereby increasing the cost of construction and the price of an apartment unnecessarily. Developers are therefore forced to provide something that consumers in this segment don't need but will end up having to pay for.

The success of the affordable housing initiative hence depends on the  proactive involvement and a healthy conversation amongst all its stakeholders. With the deployment of the Real Estate and Regulatory Act (RERA), which mainly focuses on completion of projects on time, there is hope for effectively covering the demand-supply gap for affordable housing under the PPP Policy. If all the acts under the PPP policy encompass, it will certainly succeed and help in the overall supply of affordable housing in a big way.  

(The author is joint managing director, Legacy Global Projects)