Affordable housing: long way to go

As our current $2.5 trillion economy rolls on and, at the current GDP growth rate of 7%, is likely to overtake the GDP of UK and France to rank among the top 5 economies in the next few years, one of the questions that’s asked is: growth at what cost? Are the basic needs of the citizens met?

One of the basic needs of every citizen is housing. Rising income levels, rapid economic growth and migration of people from rural to urban areas –- not to be confused with urbanisation — have increased demand for housing. The higher demand for housing has pushed up land prices exponentially in urban areas and along with it the construction costs. The need of the hour is to meet the housing needs of urban poor.

Or, rather making housing affordable. Gharonda, a Hindi movie released almost four decades back highlighted the problems of housing in Mumbai. Cut to 2018, the woes of a city dweller have not changed much, except that they are no longer only Mumbai’s problem but of cities across the country.

Realising that it is the responsibility of the government to provide basic housing, the government launched the ambitious Pradhan Mantri Awas Yojana in 2016. The mission -–to provide housing for all by 2022. To achieve this, the government has implemented a slew of measures recently which would benefit all stakeholders in the sector –- the lenders, the builders or developers and the buyers, in some way or the other.

Housing for All: The President, in his address to the joint session of parliament in June 2014, had announced that “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.”

The mission seeks to address the housing requirement of the urban poor, including slum dwellers, through four verticals.

Buyers: The scheme envisages interest subsidy to beneficiaries of Economically Weaker Section (EWS) and Low-Income Group (LIG) seeking housing loans from banks, housing finance companies and other such institutions. Beneficiaries would be eligible for a subsidised interest rate of 6.5% for a tenure of 15 years or during the tenure of loan, whichever is lower.

However, the credit-linked subsidy will be available only for loan amounts upto Rs 6 lakh and addi­tional loans beyond Rs 6 lakh, if any, will be at non-subsidised rate. Interest subsidy will be credited upfront to the loan account of beneficiaries through lending institutions, resulting in reduced effective housing loan and equated monthly instalments (EMI).

Credit-linked subsidy would be available for housing loans availed for new construction and addition of rooms, kitchen, toilet, etc., to existing dwellings as incremental housing. The carpet area of houses being constructed or enhanced under this component of the mission should be up to 30 sqm (322.92 sft) and 60 sqm (645.84 sft) for EWS and LIG respectively.

Housing and Urban Development Corporation (HUDCO) and National Housing Bank (NHB) have been identified as Central Nodal Agencies (CNAs) to channelise this subsidy to the lending institutions and for monitoring the progress of this component.

In what could be a huge relief and a game changer, the Lok Sabha has passed the amended Insolvency and Bankruptcy Code (Second Amendment) Bill, 2018,to put home-buyers on par with financial creditors of real estate firms that have defaulted on loan payments. Hitherto, homebuyers came last, after secured and institutional creditors, in terms of priority of claims to recover their dues.

Builders: Another component of the mission is ‘affordable housing in partnership’ (AHP). While the interest subsidy scheme is a demand-side intervention, this is a supply-side intervention. The mission will provide financial assistance to EWS houses built with different partnerships by states or cities. To increase availability of houses for EWS category at an affordable rate, states and union territories, either through their agencies or in partnership with the private sector, can plan affordable housing projects. Central assistance at the rate of Rs 1.5 lakh per house would be available for all EWS houses in such projects.

The mission may provide balm to the real estate sector recovering from a spate of regulatory changes like implementation of RERA (Real Estate Regulation Act), GST, demonetisation, etc.

Lenders: In the second bi-monthly monetary policy review meeting in June, the Reserve Bank of India had taken a few decisions on affordable housing. To bring greater convergence of the Priority Sector Lending (PSL) guidelines for housing loans with the Affordable Housing Scheme and to give a fillip to low-cost housing for the EWS and LIG, the RBI agreed to revise the housing loan limits for PSL eligibility from the existing Rs 28 lakh to Rs 35 lakh in metropolitan centres (with population of 10 lakh and above) and from the existing Rs 20 lakh to Rs 25 lakh in other centres, provided the overall cost of the dwelling unit in the metropolitan centre and at other centres does not exceed Rs 45 lakh and Rs 30 lakh, respectively.

(The writer is a former banker, currently with the Manipal Academy of Banking, Bengaluru)