What is Holding up Modi Government’s Affordable Housing Scheme?

While there are doubts about the government constructing one crore affordable houses by 2022, a recent report has estimated a shortage of houses for the urban population at two crore – which it said can take up to eight to ten years to overcome.

New Delhi: Prime Minister Narendra Modi recently reaffirmed his government’s commitment to providing a roof to every urban household by 2022 while interacting with beneficiaries of the Pradhan Mantri Awas Yojana (PMAY) via video conferencing.

However, slow progress in the implementation of the scheme in urban areas hasn’t inspired much confidence, with data showing that the NDA-II government may be struggling to deliver on its tall promise.

What has sparked scepticism is the fact that in the last year, the Centre has quietly revised the initial target of building 1.8 crore houses for urban areas twice – first to 1.2 crore and then further down to one crore. While the government insists that the initial targets were over-estimates, a new industry report has pegged the lack of affordable houses in urban areas at two crore.

What sops does the government offer?

The government provides interest subsidy on loans availed by beneficiaries for construction or purchase of houses under the scheme which has urban and rural components.

While the ministry of rural development is the nodal agency for the implementation of the affordable housing scheme in rural areas, PMAY-R, the fund for executing the scheme in urban areas is routed through the ministry of housing and poverty alleviation.

Against the target of constructing 46.5 lakh houses under the PMAY-U, only 3.5 lakh houses have been completed as of March 22, according to government data.

In the country’s financial capital Mumbai, not even one house has been built against the set target of 1.97 lakh.

The Centre has targeted construction of 26 lakh houses in 2018-19, 26 lakh in 2019-20, 30 lakh in 2020-21 and 29.80 lakh in 2021-22. But experts say these targets are too ambitious and could be missed by huge margins.

On the supply side, land acquisition has emerged as a major hurdle to expediting the pace of construction of affordable houses in cities.

On the demand side, securing financing for eligible buyers from banks and housing finance agencies has not been easy. The reason: the scheme primarily targets households from economically weaker section (EWS) and low-income groups, who mostly work in the informal sector and lack documentation necessary to avail cheaper financing offered by the government for its beneficiaries.

Delinquencies on repayment of loans taken for purchase of affordable houses are already rising and could deter lenders from sanctioning fresh loans if the current trend continues.

According to rating agency CRISIL, gross NPAs of housing finance companies (HFCs) were close to 1.1% as at the end of March, up from 0.8% a year ago. While the overall sectoral gross NPA trend has been reasonably steady, some HFCs focusing on the affordable housing segment have shown an above-average increase in delinquencies with gross NPA at 4-5%, the rating agency added.

It is not surprising that the Reserve Bank of India (RBI) has turned cautious on loan sanctions for affordable houses. “We will consider appropriate policy response such as a tightening of the loan-to-value (LTV) ratios and/or an increase in the risk weights, should the need arise,” the RBI said in its latest bi-monthly monetary policy statement.

While there are serious doubts about the government constructing one crore affordable houses by 2022, a recent FICCI-CBRE report has estimated a shortage of houses for the urban population at two crore, which it said can take up to eight to ten years to overcome.

“The affordable housing segment hasn’t really gained the required momentum to address this gap. A major reason has been the lack of private participation in the segment,” said the FICCI-CBRE whitepaper titled ‘Affordable Housing – The Next Big Thing?’ released in March 2018.

To encourage developers to undertake affordable housing projects in urban areas, the government has announced several incentives for the sector, including infrastructure status. It has also extended interest subsidy benefit of about Rs 2.60 lakh on home loans under the programme for beneficiaries in the middle-income group by 15 more months. Now, the subsidy will be available till March 2019. However, the response from private developers has been less than enthusiastic.

Land availability, relaxation in development norms, faster approvals for affordable housing projects, clear definition of affordable housing and better alignment between central and state policies are the areas flagged by the whitepaper for immediate government intervention to attract private participation.

The government has recently approved revised guidelines for time-bound closure of sick and loss-making central public sector enterprises and the disposal of their movable and immovable assets, which would accord first priority to affordable housing projects in allotment of land. How far this will ease the availability of land parcels for affordable housing projects remains to be seen.

Durga Shanker Mishra, secretary, the ministry of housing and urban affairs, recently admitted that the government plans to build one crore, not two crore, houses in cities by 2022 under affordable housing scheme. But Mishra insists that the higher number was an over-estimate of demand.

“Let me correct that. The number was never two crore. In 2011, a special group in planning commission estimated that around 1.78 crore houses to be built across the nation. But this number has been re-validated from different states and the number comes to around one crore. So, 2022 is the target for completing one crore houses,” Mishra clarified to the CNBC TV earlier this month.

How the PMAY-U is being implemented

There are four main verticals of the scheme. In the first vertical, the beneficiary stays in his or her house and expands existing structure or reconstructs a new one because the available built-up area is not enough or lacks required facilities. The government says it has already granted approval for 25.8 lakh houses under this category of the scheme.

In the second vertical, public or private agencies partner with the government to construct houses for EWS and low-income group customers. The government says it has already given its sanction for building 17.8 lakh houses under this category.

The third one targets redevelopment of slums. Existing houses are demolished and occupants are given temporary houses until new ones are ready. The government says it has already given sanction for 2.4 lakh houses under this category.

The fourth one is the credit-linked subsidy scheme, implemented by National Housing Bank and Housing and Urban Development Corporation Ltd. The government says it has accorded sanction for 1.69 lakh houses.

The real estate sector has been in the doldrums due to a sluggish demand for premium properties. It was expected that the affordable housing scheme would spur activity in the sector. However, it has failed to make a difference. Even the modest target of constructing one crore houses by 2022 now appears to be a tall order.