A slew of measures in Budget 2016 can go a long way in filling this funding gap and attracting sustainable private and public capital for creation of affordable housing.
The need to push affordable housing through Government’s intervention cannot be overemphasized. With the launch of Pradhan Mantri Awas Yojna (PMAY a.k.a. ‘Housing for All’), Smart Cities and Atal Mission for Rejuvenation of Urban Transportation (AMRUT), the Government has already set the ball rolling. Howsoever attractive the incentives for affordable housing projects and consumers may be under PMAY, the program does not provide the necessary equity and debt capital required to kick-start affordable housing projects. A slew of measures in Budget 2016 can go a long way in filling this funding gap and attracting sustainable private and public capital for creation of affordable housing.
Here is our Budget 2016 wishlist to promote funding for affordable housing under PMAY:
1. Alternative Investment Fund-CAT 1 status for private equity funds investing in affordable housing would enable channelising private and public funds towards providing equity and debt capital to affordable housing projects.
2. Promote foreign funding in affordable housing projects: The distinction between affordable housing projects and other projects for FDI has been done away with recently. The definition should be invoked and brought in line with PMAY.
3. Lower cost of capital for affordable housing developers by providing funding to startup developers and private equity funds in affordable housing from the Rs 10,000 crores startup fund.
4. Fund low-cost construction technology ventures either through budget allocation or through creation of a dedicated fund with Government as the anchor investor. The Government may also allocate a certain portion of the funds from the recently announced Rs 10,000 crores startup fund.
5. Tax relief / exemption to developers and private equity funds investing in affordable housing. A tax holiday similar to the ones announced for startups can also be provided to startup developers in affordable housing.
6. Relief/exemption in taxation for buyers will allow room for affordable housing developments to pocket some extra margins. Alternatively, the relief/exemption to buyers can increase sales velocity of projects should developer chose to pass on the relief/exemption benefits to end customers.
7. Credit guarantee schemes for affordable housing customers and projects: The credit guarantee to projects can be restricted to defaults/delays arising from the approval process and should not be provided on cost escalations / sales slowdown.
8. Single-window clearance has been a long sought dream of the real estate sector. Single- window clearance should focus on ensuring not only fast approvals but also on reducing the uncertainty in approval timeframes. More than any other segment in the Indian Real Estate, the thin-margined affordable housing projects need it the most to make projects financially viable
9. Streamlining environmental clearance (EC) can significantly improve the financial viability of large affordable housing projects. Many affordable housing developers have been forced to plan small projects in order to avoid EC.
10. Promote end-users (first time home buyers) and discourage investors from purchasing affordable housing units. Investor activity leads to unwarranted price escalations rendering the housing units unaffordable for end customers. The Government can increase the benefits provided to first time home buyers and can restrict the tax benefits provided under the Income Tax Act Sec. 54 (F) on reinvestment of capital gains from sales of residential property to first time buyers only.
Ashish Bhalla – Senior Vice President & Business Head, Arthveda Fund Management Pvt. Ltd.